CPA filing error did not defeat opportunity-fund election

Plain-English summary

An S corporation intended to operate as a qualified opportunity fund and relied on its CPA to extend and file its first corporate return with Form 8996. An administrative error caused the CPA to miss Form 7004, so the later-filed Form 1120-S and Form 8996 were untimely. The IRS found that the corporation reasonably relied on the CPA, acted in good faith, and would not gain an improper tax advantage from relief. It treated the filed Form 8996 as timely and recognized the self-certification for the intended year. The corporation was instructed to send the ruling to the service center for association with the return, and the IRS did not decide whether it otherwise qualified as a QOF.

Ruling snapshot

• Question: Could the S corporation's late Form 8996 be treated as timely after its CPA missed the extension filing?
• Outcome: approved, 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: 202411007
                                                                  Person To Contact:
 Release Date: 3/15/2024
                                                                  ---------------------------, ID No. ---------------
 Index Number: 9100.00-00, 1400Z.02-00                            -----------------
                                                                  Telephone Number:
 ---------------------------------------------------------        --------------------
 ---------------------------------                                Refer Reply To:
 ------------------------------------                             CC:ITA:B08
                                                                  PLR-112942-23
                                                                  Date:
 Attn: ----------------------                                     December 15, 2023


VIA E-FAX – --------------------


 Taxpayer                       =       ----------------------------------------------------------------------------
                                        -------------

 Month 1                        =       --------------------------

 Month 2                        =       ----------------

 Date 1                         =       -----------------------

 Date 2                         =       ---------------------

 Date 3                         =       ------------------

 Date 4                         =       ---------------------------

 Date 5                         =       ----------------

 Year 1                         =       -------

 State                          =       ----------

 Shareholder                    =       ------------------------------------------------

 CPA                            =       -----------------------------

PLR-112942-23                                       2


Dear -------------------

This letter responds to Taxpayer's request for a letter ruling dated Date 5. Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-31 for an extension of time to file
Form 8996, Qualified Opportunity Fund, to self-certify as a qualified opportunity fund
(QOF), as defined in section 1400Z-2(d), effective as of Month 1, the first month in
which Taxpayer intended to be a QOF.

                                                FACTS

According to the information and representations provided, Taxpayer, a limited liability
company classified as a S corporation for federal tax purposes, was formed on Date 1
in State, for the purposes of qualifying and serving as a QOF through investing in and
substantially improving qualified opportunity zone property. Taxpayer represents that it
operates on a calendar year tax year and utilizes the cash method. As of the end of
Year 1, Taxpayer represents that it had a sole shareholder, Shareholder.

Taxpayer represents that it intended to elect to be a QOF beginning in Month 1.
Taxpayer represents that Shareholder retained and relied on CPA to serve as
Taxpayer’s accounting firm and tax advisor. As such, Taxpayer represents that CPA
was responsible for preparing and filing Taxpayer’s Form 1120-S, U.S. Income Tax
Return for an S Corporation, along with the Form 8996 to self-certify Taxpayer as a
QOF for Taxpayer’s tax year Year 1. Taxpayer represents that CPA was expected to
file Form 7004, Application for Automatic Extension of Time to File Certain Business
Income Tax, Information, and Other Returns, by Date 2, the due date of Taxpayer’s tax
return for Year 1, thereby extending the deadline to file Taxpayer’s tax return to Date 4.

However, Taxpayer represents that due to an administrative error by CPA, CPA
unknowingly failed to file a Form 7004 on behalf of Taxpayer. CPA represents that CPA
discovered its failure to file the Form 7004 in Month 2, after Date 2, which meant
Taxpayer’s Year 1 tax return and Form 8996 would not be timely filed. Taxpayer
represents that CPA filed Taxpayer’s Form 1120-S and Form 8996 for Year 1 on Date
3.

Taxpayer represents that it subsequently learned that it therefore would not be able to
timely file its Year 1 tax return and Form 8996 to self-certify as a QOF. Taxpayer then
instructed the CPA to file this request for a letter ruling on its behalf.

                                       LAW AND ANALYSIS

Section 1400Z-2(e)(4) directs the Secretary to prescribe such regulations as may be
necessary to carry out the purposes of section 1400Z-2, including rules for the
1
 Unless otherwise specified, all “section” references are to sections of the Internal Revenue Code (Code)
and all “§” references to sections of the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).

PLR-112942-23                                  3

certification of QOFs. Section 1.1400Z2(d)-1(a)(2)(i) of the regulations 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. The Form 8996 Instructions published pursuant to
these regulations specify that to self-certify as a QOF, a taxpayer must file Form 8996
with its tax return for the year to which the certification applies by the due date of the tax
return (including extensions).

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) of the regulations 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) of the regulations 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.

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;

PLR-112942-23                                 4

       (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) of the regulations 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) of the regulations 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).

                                      CONCLUSION

The information and representations provided indicates that Taxpayer did not timely file
its Form 8996 by the due date of its income tax return for Year 1 due to Taxpayer’s
reasonable reliance on CPA and CPA’s failure to file a Form 7004 on behalf of
Taxpayer. Based on the information provided, including affidavits and representations
under penalties of perjury, we conclude that Taxpayer has acted reasonably and in
good faith, and that granting a reasonable extension of time for Taxpayer to file Form
8996 will not prejudice the interests of the Government. Consequently, the Form 8996
attached to Taxpayer’s Form 1120-S for Year 1, filed on Date 3, is considered timely
filed, and Taxpayer has thereby made the election under section 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 Form
1120-S.

                                         CAVEATS

The granting of an extension of time in this ruling letter is not a determination that
Taxpayer is otherwise eligible to self-certify as a QOF. See § 301.9100-1(a).

This ruling is based upon facts and representations submitted by the Taxpayer and
accompanied by penalty of perjury statements executed by the appropriate parties.
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 either expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we have no opinion, either express or implied,

PLR-112942-23                                 5

concerning whether any investments made in Taxpayer are qualifying investments as
defined in § 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be treated as a QOF. In addition, we
also express no opinion on whether any interest owned in any entity by Taxpayer
qualifies as qualified opportunity zone property, as defined in section 1400Z-2(d)(2), or
whether such entity would be treated as a qualified opportunity zone business, as
defined in section 1400Z-2(d)(3). We express no opinion regarding the tax treatment of
the instant transaction under the provisions of any other sections of the Internal
Revenue 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.

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. Taxpayers that have previously filed a return or administrative adjustment
requests attaching Form 8996 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 previous filing(s).

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 section 6110.

Pursuant to the Form 2848, Power of Attorney and Declaration of Representative, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.

                                                  Sincerely,


                                                  Martin L. Osborne
                                                  Senior Counsel, Branch 8
                                                  Office of Chief Counsel
                                                  (Income Tax & Accounting)


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