Late Form 8996 self-certifying an Opportunity Zone fund is treated as timely filed

Plain-English summary

A limited partnership was set up to be a Qualified Opportunity Fund (QOF), the vehicle investors use to defer capital gains by putting money into distressed Opportunity Zones. To become a QOF, an entity must "self-certify" by attaching Form 8996 to its tax return by the due date, including extensions. Here the fund's tax advisor prepared the return and Form 8996 but, through an oversight, missed the extended filing deadline and filed late. The fund asked for relief under the Treasury "9100" regulations, which let the IRS accept a late regulatory election if the taxpayer acted reasonably and in good faith and the government is not prejudiced. The IRS found the fund reasonably relied on a tax professional who dropped the ball, so it granted relief and treated the late Form 8996 as timely, effective from the date the fund was formed. The ruling only fixes the timing; the IRS expressed no view on whether the entity actually qualifies as a QOF or whether any investment in it qualifies.

Ruling snapshot

• Question: Should the IRS grant an extension of time to file a late Form 8996 self-certifying the taxpayer as a Qualified Opportunity Fund?
• Outcome: approved
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. § 1.1400Z2(d)-1(a); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202429011                                             Third Party Communication: None
 Release Date: 7/19/2024                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00, 9100.00-00
                                                               Person To Contact:
 ----------------                                              -----------------------, ID No. -------------------
 ----------------------------                                  ---------------------------------------------------
 ----------------------------------------                      Telephone Number:
 ----------------------------------                            --------------------
                                                               Refer Reply To:
                                                               CC:ITA:B04
                                                               PLR-121712-23
                                                               Date:
                                                               April 25, 2024



                                                   LEGEND

 Taxpayer          =   ------------------------------------------
 Advisor           =   -----------------------
 Date 1            =   --------------------------
 Date 2            =   ---------------------
 Date 3            =   ---------------------------
 Date 4            =   -----------------------
 Date 5            =   -------------------------
 Month 1           =   ------------------
 Year 1            =   -------
 Year 2            =   -------
 Partnership       =   ---------------------
 State Z           =   -------------




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

        This letter responds to Taxpayer's request dated Date 5, requesting 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 Date 1, the date 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.
2023-1, 2023-1 I.R.B. 1. A paper copy will not be mailed to Taxpayer.
PLR-121712-23                                2


                                         FACTS

        Taxpayer has represented that the facts are as follows. Taxpayer, organized as
a limited partnership under the laws of State Z, was formed on Date 1 to be a QOF for
the purpose of investing in qualified opportunity zone property as defined in section
1400Z-2(d)(2). Specifically, Taxpayer was organized to invest in Partnership, a
qualified opportunity zone business as defined in section 1400Z-2(d)(3) and Treas. Reg.
§§ 1.1400Z2(a)-1(b)(29) and 1.1400Z2(d)-1(d).

      According to Taxpayer, Taxpayer's representatives engaged Advisor to prepare
Year 1 Federal income tax returns for Taxpayer in early Year 2. In Month 1, Taxpayer's
representatives informed Advisor that Taxpayer was formed with the intention that
Taxpayer qualify as a QOF beginning in Year 1, and therefore needed to make an initial
QOF election with its Year 1 tax return by including Form 8996 with such return.

       According to the information and affidavits provided, Advisor prepared a Form
7004, Application for Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns, ahead of the Date 2 unextended due date.
Subsequently, Advisor prepared Taxpayer's Year 1 income tax returns, including Form
8996, but due to an inadvertent oversight, Advisor failed to timely file such returns by
the extended due date, Date 3. Advisor subsequently realized the error and filed
Taxpayers income tax returns, including Form 8996, on Date 4.

                                     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. Form 8996 must be filed by the due date of the
tax return (including extensions). The information provided indicates that Taxpayer
intended to self-certify as a QOF as of the date Taxpayer was formed but did not file its
Form 8996 by the due date of its income tax return.

        Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards 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.
PLR-121712-23                                 3


      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;
       (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 date Taxpayer was
formed, is considered timely filed.

        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.
PLR-121712-23                                    4

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, as of Date 1, and the late Form 8996
for Year 1. Specifically, 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
§ 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.

       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.

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


                                    Sincerely,



                                    Stephen J. Toomey
                                    Senior Counsel, Branch 4
                                    Office of Associate Chief Counsel
                                    (Income Tax & Accounting)



 cc: ---------------
     ----------------------