Extension granted after an accountant omitted an opportunity fund form

Plain-English summary

A limited liability company taxed as a partnership was formed to qualify as a qualified opportunity fund. It relied on an accounting firm to file its first-year partnership return and all required forms, but the firm did not know that Form 8996 was required and omitted it. An accountant discovered the mistake after attending a continuing education session and promptly told the partnership. The IRS found that the partnership reasonably relied on a qualified tax professional, acted in good faith, and would not prejudice the government by receiving relief. It granted 60 days to attach a completed Form 8996 to an amended return or administrative-adjustment request, without deciding whether the partnership or its investments otherwise qualified.

Ruling snapshot

• Question: Could the partnership receive more time to file Form 8996 and self-certify as a qualified opportunity fund for its first year?
• Outcome: Approved, with 60 days from the ruling date to file Form 8996
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                   Department of the Treasury
                                                               Washington, DC 20224

    Number: 202342004                                          Third Party Communication: None
    Release Date: 10/20/2023                                   Date of Communication: Not Applicable
    Index Number: 9100.00-00, 1400Z.02-00,
                  1400Z.01-00, 1400Z.00-00                     Person To Contact:
                                                               -----------------, ID No. -----------------
    ------------------------------------------                 Telephone Number:
    -----------------------                                    --------------------
                                                               Refer Reply To:
    -----------------------
                                                               -----------------
    ------------------
                                                               CC:ITA:B04
    --------------------------------------
                                                               PLR-101926-23
                                                               Date:
                                                               July 24, 2023



                                                      LEGEND

    State Z                 =   ---------
    State Y                 =   ---------------
    X                       =   ---
    Tax Year                =   ------------------
    Month A                 =   --------------
    Taxpayer                =   ----------------------------
                                -------------------------
    Advisor                 =   ------------------
    Accounting Firm         =   --------------------
    Year 1                  =   -------
    Date 1                  =   -----------------------
    Date 2                  =   ---------------------------
    Date 3                  =   --------------------------


Dear -----------------:

This responds to Taxpayer’s request, dated Date 3, for a private letter ruling.
Specifically, Taxpayer requests relief, under §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations, 1 for an extension of time to file Taxpayer’s
Form 8996, Qualified Opportunity Fund, for purposes of making the election to: (1) self-
certify Taxpayer as a qualified opportunity fund (“QOF”), as defined in § 1400Z-2(d);
and (2) be treated as a QOF, effective as of the month Taxpayer was formed, as
provided under § 1400Z-2 and § 1.1400Z(d)-1(a).



1
  Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code
(“Code”) or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301) as applicable.
PLR-101926-23                                2

                                         FACTS

Taxpayer was organized on Date 1 as a limited liability company, (“LLC”), under the
laws of State Z and is classified as a partnership for Federal tax purposes. As stated in
Taxpayer’s LLC operating agreement, Taxpayer was organized for the purpose of
qualifying as a QOF and investing in qualified opportunity zone property as defined in
§ 1400-2(d)(2). Taxpayer has a tax year end of Tax Year.

Taxpayer engaged Accounting Firm, a certified public accountant firm licensed in State
Y with more than X years of experience, to provide Taxpayer’s tax and accounting
services for Year 1. Accounting Firm was aware of Taxpayer’s intent to be a QOF at
the time of engagement.

Taxpayer relied upon Accounting Firm to timely file Taxpayer’s required Year 1 Federal
income tax return and all accompanying forms, including any necessary to be treated as
a QOF. Accounting Firm, however, was unaware of the specific filing requirements for a
QOF. Particularly, Accounting Firm was unaware of the requirement to file a completed
Form 8996 with Taxpayer’s timely filed Year 1 Federal income tax return in order for
Taxpayer to self-certify as a QOF and be treated as a QOF as of the month Taxpayer
was formed. Taxpayer had no knowledge that Accounting Firm was unfamiliar with the
filing requirements of a QOF.

On Date 2, Accounting Firm timely filed Taxpayer’s Year 1 Form 1065, U.S. Return of
Partnership Income, but failed to attach a completed Form 8996. Advisor, a certified
public accountant of Accounting Firm, learned that Taxpayer was required to file Form
8996 with Taxpayer’s Year 1 Federal income tax return when Advisor attended a
continuing education session in Month A. After the continuing education session,
Advisor informed Taxpayer of Accounting Firm’s failure to attach the required Form
8996 with Taxpayer’s Federal income tax return. Taxpayer then instructed Accounting
Firm to prepare this ruling request.

On Date 3, Accounting Firm submitted this request for relief on behalf of Taxpayer.

Taxpayer represents that granting of the relief under § 301.9100-3 will not result in a
lower tax liability for the years affected by the election than Taxpayer would have
had if the election had been timely made (taking into account the time value of money).

                                 LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Section 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.
PLR-101926-23                                 3


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 a Form 8996 by the due date of its income tax return for Year 1 due to
Accounting Firm’s failure to advise Taxpayer of the requirement of the Form 8996 to
self-certify as a QOF. Taxpayer relied upon Accounting Firm for all Federal income tax
matters in Year 1.

Section 301.9100-3(a) provides that requests for extensions of time for regulatory
elections that do not meet the requirements of § 301.9100-2 (automatic extensions)
must be made under the rules of § 301.9100-3.

Section 301.9100-1(b) defines the term “regulatory election” as including any election
whose due date is prescribed by a regulation published in the Federal Register. Section
1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF and
electing to self-certify as a QOF. As such, these elections are regulatory elections, as
defined in § 301.9100-1(b)(1).

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

Section 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;

       (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.
PLR-101926-23                                4

Under § 301.9100-3(b)(2), a taxpayer, however, is not considered to have reasonably
relied on a qualified tax professional if the taxpayer knew or should have known that the
professional was not competent to render advice on the regulatory election or was not
aware of all relevant facts.

Under § 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 has been
      or could be imposed under § 6662 at the time the taxpayer requests relief, and
      the new position requires or permits a regulatory election for which relief is
      requested;

      (ii) was fully informed in all material respects of the required election and related
      tax consequences but chose not to make 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.

Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time to make a regulatory election only when the interests of the
Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i)
provides that 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 (taking into account the time value of money). Section 301.9100-3(c)(1)(ii)
provides that the interests of the Government are ordinarily prejudiced if the taxable
year in which the regulatory election should have been made or any taxable year that
would have been affected by the election had it been timely made are closed by the
period of limitations on assessment under § 6501(a) before the taxpayer's receipt of a
ruling granting relief under this section.


                                     CONCLUSION

Based on the facts and information submitted and the representations made, we
conclude that (1) Taxpayer’s request for an extension of time to elect to be a QOF and
to self-certify as a QOF is a regulatory election governed by § 301.9100-3; (2) that
Taxpayer has acted reasonably and in good faith; and (3) that the granting of relief
would not prejudice the interests of the Government.

Accordingly, we grant Taxpayer an extension of 60 days from the date of this letter
ruling to file a Form 8996 to make the election to self-certify as a QOF under § 1400Z-2
and § 1.1400Z2(d)-1(a)(2)(i). The election must be made on a completed Form 8996
PLR-101926-23                                  5

attached to the Taxpayer’s amended Year 1 tax return or administrative-adjustment
request (as applicable).

                                         CAVEATS

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by the appropriate parties.
While this office has not verified any of the material submitted in support of the request
for rulings, it is subject to verification on examination.

This ruling addresses the granting of § 301.9100-3 relief as applied to the election to
self-certify Taxpayer as an QOF by filing Form 8996 for Year 1. Specifically, we have no
opinion, neither express nor implied, concerning whether any investments made into
Taxpayer are qualifying investments as defined in § 1.1400Z-2(a)-1(b)(34), or whether,
at any time, Taxpayer met or meets the requirements under § 1400Z-2 and the
regulations thereunder to be a QOF. We also express no opinion regarding the tax
treatment of the instant transaction under the provisions of any other sections of the
Code or Treasury Regulations that may be applicable, nor regarding the tax treatment
of any conditions existing at the time of, or effects resulting from, the instant transaction.

A copy of this letter must be attached to any 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.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
it may not be used or cited as precedent. Enclosed is a copy of the letter ruling showing
the deletions proposed to be made when it is disclosed under § 6110.

In accordance with the Form 2848, Power of Attorney and Declaration of
Representative on file with this office, we are sending a copy of this letter to Taxpayer’s
authorized representative.

                                                          Sincerely,




                                                          James Yu
                                                          Senior Counsel, Branch 4
                                                          Office of Associate Chief Counsel
                                                          (Income Tax & Accounting)

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