A fund whose advisor never filed Form 8996 gets 9100 relief and 60 days to self-certify as a Qualified Opportunity Fund

Plain-English summary

A limited liability company taxed as a partnership was formed to be a Qualified Opportunity Fund (QOF), the vehicle investors use to defer capital gains by investing in Opportunity Zones. Becoming a QOF requires self-certifying on Form 8996, filed with the tax return by its due date (including extensions). This fund's tax advisor filed the partnership return (Form 1065) late and, worse, left off the required Form 8996 entirely, so the fund never self-certified. After discovering the failure, the fund asked the IRS for a discretionary extension (9100 relief). The IRS granted it, finding the fund acted reasonably and in good faith by relying on its advisor, who mistakenly failed to file the form, and that granting relief would not prejudice the government. The fund's late Form 8996 will be treated as timely, certifying it as a QOF effective from the month it was formed, provided the form is filed within 60 days of the ruling. The ruling fixes only the timing of the self-certification and expresses no opinion on whether the fund meets the substantive QOF requirements or whether investments in it qualify. It matters to Opportunity Zone fund sponsors whose preparer drops the self-certification.

Ruling snapshot

• Question: Should the fund get an extension of time under § 301.9100-3 to file its late Form 8996 self-certification as a QOF?
• Outcome: approved (late Form 8996 deemed timely if filed within 60 days; QOF status effective from formation month)
• Key authorities: IRC § 1400Z-2(d), (e)(4)(A); Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202335012                                             Third Party Communication: None
 Release Date: 9/1/2023                                        Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                               Person To Contact:
 ------------------------------                                --------------------------, ID No. ----------------
 ---------------------------------                             -----------------
 --------------------------------                              Telephone Number:
 --------------------------------------                        --------------------
                                                               Refer Reply To:
                                                               CC:ITA:B04
                                                               PLR-123888-22
                                                               Date:
                                                               June 07, 2023




                                                    Legend

 Taxpayer       =   --------------------------------------------------------
 Advisor        =   --------------------------------------------------------------------------------------------
 Date 1         =   ---------------------
 Date 2         =   -----------------------
 Date 3         =   -------------------------
 Month 1        =   ----------------
 Year 1         =   -------
 State Z        =   ------------------



Dear ---------:

This letter responds to Taxpayer’s request dated Date 3, seeking a private letter ruling
granting relief to make a late regulatory election pursuant to Treas. Reg. §§ 301.9100-1
and 301.9100-3 of the Procedure and Administration Regulations. Specifically,
Taxpayer requests an extension of time to file Form 8996, Qualified Opportunity Fund,
to (1) self-certify as a qualified opportunity fund (QOF), as defined in section 1400Z-2(d)
of the Internal Revenue Code (Code) and (2) to be treated as a QOF, effective as of the
month Taxpayer was formed, as provided under section 1400Z-2(d) and Treas. Reg. §
1.1400Z2(d)-1(a).

This letter ruling is being issued electronically in accordance with Rev. Proc. 2022-1,
2022-1 I.R.B.1. A paper copy will not be mailed to Taxpayer.
PLR-123888-22                                2


                                         FACTS

Taxpayer has represented that, and provided information to the effect that, the facts are
as follows. Taxpayer, a partnership organized as a limited liability company under the
laws of State Z, was formed to be a QOF effective on Date 1 for the purpose of
investing in qualified opportunity zone property as defined in section 1400Z-2(d)(2).

Taxpayer’s representatives engaged Advisor to provide tax services for Taxpayer,
including preparation of Taxpayer’s Federal income tax returns, including tax elections
and all related forms (including the election to self-certify Taxpayer as a QOF, and to
treat Taxpayer as a QOF as Month 1).

However, Taxpayer’s Form 1065, filed on Date 2, was not timely filed. Additionally, the
Form 1065 did not include the required Form 8996 for Taxpayer to self-certify QOF
status and to be treated as a QOF as of Month 1. Subsequently, Taxpayer discovered
the failure to file Form 8996.

LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for the
certification of QOFs. Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i) provides that the self-
certification of a QOF must be timely-filed and effectuated annually in such form and
manner as may be prescribed by the Commissioner of Internal Revenue in the Internal
Revenue Service forms or instructions, or in publications or guidance published in the
Internal Revenue Bulletin.

To self-certify as a QOF, a taxpayer must file Form 8996 with its tax return for the year
to which the certification applies. The Form 8996 must be filed by the due date of the
tax return (including extensions). The information provided indicates that Taxpayer did
not file its Form 8996 by the due date of its income tax return due to Advisor’s mistaken
failure to do so.

Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards that the Service
will use to determine whether to grant an extension of time to make a regulatory
election. Treas. Reg. § 301.9100-3(a) provides that requests for extensions of time for
regulatory elections (other than automatic changes covered in Treas. Reg. § 301.9100-
2) will be granted when the taxpayer acted reasonably and in good faith and granting
relief will not prejudice the interests of the Government.

Treas. Reg. § 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer—

(i)   Requests relief before the failure to make the regulatory election is discovered by
the Service;
PLR-123888-22                                 3

(ii)   Failed to make the election because of intervening events beyond the taxpayer’s
control;
(iii)  Failed to make the election because, after exercising reasonable diligence, the
taxpayer was unaware of the necessity for the election;
(iv)   Reasonably relied on the written advice of the Service; or
(v)    Reasonably relied on a qualified tax professional, and the professional failed to
make, or advise the taxpayer to make, the election.

Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer will not be considered to have acted
reasonably and in good faith if the taxpayer—

      (i)     Seeks to alter a return position for which an accuracy-related penalty
              could be imposed under § 6662 at the time the taxpayer requests relief
              and the new position requires a regulatory election for which relief is
              requested;
      (ii)    Was fully informed of the required election and related tax consequences,
              but chose not to file the election; or
      (iii)   Uses hindsight in requesting relief. If specific facts have changed since the
              original deadline that make the election advantageous to a taxpayer, the
              Service will not ordinarily grant relief.

Treas. Reg. § 301.9100-3(c) provides that the Service will grant a reasonable extension
of time only when the interests of the Government will not be prejudiced by the granting
of relief. The interests of the Government are prejudiced if granting relief would result in
a taxpayer having a lower tax liability in the aggregate for all taxable years affected by
the election than the taxpayer would have had if the election had been timely made.

CONCLUSION

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the granting of
relief would not prejudice the interests of the Government. Accordingly, Taxpayer has
satisfied the requirements of the regulations for the granting of relief, and Taxpayer’s
late-filed Form 8996, certifying Taxpayer as a QOF as of the month Taxpayer was
formed, will be considered timely filed provided it is filed with the appropriate service
center no later than 60 days from the date of this letter ruling.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by an appropriate party. This
office has not verified any of the material submitted in support of the request for a ruling.
However, as part of an examination process, the Service may verify the factual
information, representations, and other data submitted.

This ruling addresses the granting of Treas. Reg. § 301.9100-3 relief as applied to the
election to self-certify Taxpayer as a QOF by filing Forms 8996 for Year 1. Specifically,
PLR-123888-22                                  4

we have no opinion, either express or implied, concerning whether any investments
made into Taxpayer are qualifying investments as defined in Treas. Reg. §
1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements under section
1400Z-2 and the regulations thereunder to be a QOF. We express no opinion regarding
the tax treatment of the instant transaction under the provisions of any other sections of
the Code or regulations that may be applicable, or regarding the tax treatment of any
conditions existing at the time of, or effects resulting from, the instant transaction.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.
                                         Sincerely,



                                       Lisa Mojiri-Azad
                                       Senior Technician Reviewer, Branch 4
                                       (Income Tax & Accounting)


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