Opportunity fund's late Form 8996 was treated as timely after adviser oversight

Plain-English summary

A partnership-taxed limited liability company was formed to operate as a qualified opportunity fund. Its accounting firm was responsible for filing an extension, the partnership return, and Form 8996, but an administrative oversight prevented the company from being properly entered in the firm's systems. The firm therefore failed to file Form 7004, and the return and self-certification were late. Once it discovered the problem, the firm filed the return and Form 8996. The IRS found that the company reasonably relied on a qualified tax professional and treated the filed Form 8996 as timely, without deciding whether the company or its investments met the substantive opportunity-zone requirements.

Ruling snapshot

• Question: Could the opportunity fund's late Form 8996 be treated as timely when its accounting firm failed to file the expected extension?
• Outcome: approved, filed Form 8996 treated as timely
• 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: 202401002                                          [Third Party Communication:
 Release Date: 1/5/2024                                     Date of Communication: Month DD, YYYY]
 Index Number: 9100.00-00
                                                            Person To Contact:
 -----------------------------------                          --------------------------, ID No. -----------------
 ------------------------------------------------------------ Telephone Number:
 ------                                                       --------------------
 -----------------------------                                Refer Reply To:
 ---------------------------------------                      CC:ITA:B05
                                                              PLR-107708-23
 In re: ----------------------------------------------------- Date:
 --------------                                               October 05, 2023
 EIN: ----------------




Legend:
 Taxpayer                          =   ---------------------------------------------------------------
 State                             =   ----------
 Accounting Firm                   =   -----------------------------
 Year 1                            =   -------
 Month 1                           =   ---------
 Month 2                           =   --------------
 Date 1                            =   ------------------------
 Date 2                            =   ----------------------
 Date 3                            =   ---------------------
 Date 4                            =   ---------------------------
 Date 5                            =   ----------------------
 Date 6                            =   ---------------------------


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

This ruling responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations, granting an extension of time to make a timely election
under § 1.1400Z2(a)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a
Qualified Opportunity Fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue
Code (Code). Taxpayer also requests to be treated as a QOF, effective as of Month 1,
Year 1, when Taxpayer was formed and subsequently funded, as provided under
§ 1400Z-2(d) of the Code and § 1.1400Z2(d)-1(a) of the Income Tax Regulations.

This letter is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-
21 I.R.B. 859.

PLR-107708-23                                 2

                                          FACTS

Taxpayer is a limited liability company organized under the laws of State on Date 2.
Taxpayer is treated as a partnership for Federal income tax purposes. Taxpayer is on
the cash method of accounting and has a taxable year end of Month 2.

Taxpayer was formed for the purposes of operating as a Qualified Opportunity Fund as
defined in § 1400Z-2(d)(1).

Taxpayer engaged Accounting Firm to serve as Taxpayer’s accounting firm and tax
advisor. Accounting Firm was responsible for preparing and filing the Taxpayer’s Form
1065, U.S. Return of Partnership Income and Form 8996, Qualified Opportunity Fund,
for Year 1 to self-certify that the Taxpayer was a QOF as of Date 2.

Accounting Firm was expected to file a Form 7004, Application for Automatic Extension
of Time to File Certain Business Income Tax, Information, and Other Returns by Date 3,
thereby extending the deadline to file the Taxpayer’s Form 1065 and Form 8996 to Date

4. Due to an administrative oversight, the Taxpayer’s information was never properly
set up in the Accounting Firm’s systems until Date 5. As a result, the Form 7004 was
not filed and the deadline to file Taxpayer’s Form 1065 and Form 8996 was not
extended.

Upon realization of the failure to properly file the Form 7004 to request an automatic
extension, Accounting Firm filed the Year 1 Form 1065 and Form 8996 on Date 6.

                                   LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to
prescribe regulations for rules for the certification of QOFs. Section 1.1400Z2(d)-1(a)(2)
of the Income Tax Regulations provides the rules for an entity to self-certify as a QOF.
Section 1.1400Z2(d)-1(a)(2)(i) provides that the entity electing to be certified as a QOF
must do so annually on a timely filed return 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, Qualified Opportunity Fund,
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 the Accounting Firm’s administrative oversight.

Because § 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to self-
certify as a QOF, these elections are regulatory elections, as defined in section 301.9100-
1(b).

PLR-107708-23                                   3


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.

Under § 301.9100-3(b), a taxpayer is deemed to have acted reasonably and in good faith if
the taxpayer requests relief before the failure to make the regulatory election is discovered
by the Service, or reasonably relied on a qualified tax professional, and the tax professional
failed to make, or advise the taxpayer to make, the election. However, a taxpayer 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.

In addition, § 301.9100-3(b)(3) provides that a taxpayer is deemed not 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 the 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.

PLR-107708-23                                  4

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. Taxpayer reasonably relied on a qualified tax
professional, and the tax professional failed to file a Form 7004 so as to permit Taxpayer to
make a timely election. Consequently, the Form 8996 attached to the Taxpayer’s return for
Year 1, filed Date 6, is considered timely filed, and Taxpayer has thereby made the election
under §§ 1400Z-2 and 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF for Year 1. Taxpayer
should submit a copy of this letter ruling to the Service Center where Taxpayer files its
returns along with a cover letter requesting that the Service associate this ruling with the
Year 1 return.

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.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, we express no opinion, either express or implied, concerning
whether any investments made into Taxpayer are qualifying investments as defined in
§ 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements under § 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 letter 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 faxed to your authorized representatives.

PLR-107708-23                                 5

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.



                                                  Sincerely,



                                                  Amy J. Pfalzgraf
                                                  Branch Chief, Branch 5
                                                  Office of Associate Chief Counsel
                                                  (Income Tax and Accounting)




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