Private Letter Ruling   
Number: 202120014   
Internal Revenue Service   
February 22, 2021   
     
     
     
Internal Revenue Service   
Department of the Treasury   
Washington, DC 20224   
     
Number: 202120014   
Release Date: 5/21/2021   
Index Number: 1400Z.02-00     
Third Party Communication: None   
Date of Communication: Not Applicable   
Person To Contact:   
ID No.   
Telephone Number:   
Refer Reply To:   
CC:ITA:B05   
PLR-126319-20   
Date:  February 22, 2021   
     
Dear *******:     
     
This ruling responds to the taxpayer's request dated *******. Specifically, the taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of the Income Tax Regulations to (1) make a timely election under section 1.1400Z2(a)-1(a)(2)(i) to be certified as a qualified opportunity fund (QOF), as defined in section 1400Z-2(d) of the Internal Revenue Code; and (2) for the taxpayer to be treated as a QOF, effective as of the month the taxpayer was formed in Year 1, as provided under section 1400Z-2(d) of the Code and section 1.1400Z2(d)-1(a) of the Income Tax Regulations.    
     
FACTS   
     
The taxpayer was organized as a limited liability company under the laws of State Z on Date 1 and is classified as an S-Corporation for Federal income tax purposes. The taxpayer was organized for the purpose of investing in qualified opportunity zone property as defined in section 1400Z-2(d)(2). Financial Advisor advised and assisted with the creation of the taxpayer as a qualified opportunity fund.   
     
On Date 2, Financial Advisor contacted Accountant, a certified public accountant and a managing director with Accounting Firm, to prepare the taxpayer's federal income tax return for Year 1. Financial Advisor informed Accountant that the entity was intended to be a qualified opportunity fund. Accountant understood that the taxpayer would need to file Form 8996, Qualified Opportunity Fund along with its federal income tax return for Year 1 in order to self-certify as a qualified opportunity fund. Advisor and Accountant did not discuss the taxpayer's entity classification.   
     
Thinking that the taxpayer was a C-Corporation, Accountant assumed that Accounting Firm had until the C-Corporation Deadline to file the taxpayer's federal income tax return, rather than the earlier S-Corporation Deadline. Because of the COVID-19 pandemic, Accountant further thought the deadline was extended to the Extended CCorporation Deadline.   
     
On Date 3, Accountant attempted to e-file a federal extension for taxpayer's Form 1120, U.S. Corporation Income Tax Return for Year 1. The extension was rejected, and Accountant was unable to determine the reason for rejection.   
     
On Date 4, Accountant prepared taxpayer's Form 1120, including the Form 8996 to self-certify as a qualified opportunity fund. Accountant sent the return through Accounting Firm's internal auditing process, at which time the entity classification error was discovered. After corrections were made, the final Form 1120-S, U.S. Income Tax Return for an S-Corporation was e-filed on Date 5, after the deadline. Attached to the return was the completed Form 8996.   
     
According to the affidavits and information provided to us, the taxpayer and the Accountant were aware of the requirement to file Form 8996 with the taxpayer's timely filed Federal income tax return for Year 1 for the taxpayer to elect to certify itself as a QOF. The taxpayer and Accountant were aware of the taxpayer's desire to be certified as a QOF. However, according to the information submitted, Accountant failed to file the taxpayer's return and Form 8996 until after the deadline for S-Corporations.   
     
After becoming aware of the consequences of failing to timely file the Form 8996, the taxpayer directed Accounting Firm to promptly submit this request for relief under sections 301.9100-1 and 301.9100-3. Taxpayer represents that it relied on Accountant to timely file Form 8996. Taxpayer further represents that granting of the relief under section 301.9100-3 will not result in a lower tax liability for the years affected by the election.   
     
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 that the rules for an entity to self-certify as a QOF. Section 1.1400Z2(a)-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 the taxpayer did not file its Form 8996 by the due date of its income tax return (including extensions) due to Accountant's failure to timely file the return and the Form 8996 by the S-Corporation Deadline.   
     
Because section 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).   
     
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 section 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 section 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, section 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.   
     
Based on the facts and information submitted and the representations made, we conclude that the taxpayer has acted reasonably and in good faith, and that the granting of relief would not prejudice the interests of the government. Accordingly, based solely on the facts and information submitted, and the representations made in the ruling request, Taxpayer has satisfied the requirements of the regulations for the granting of relief and Taxpayer's Form 8996, filed on Date 5, is considered timely filed.   
     
This ruling is based upon facts and representations submitted by the 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 the taxpayer are qualifying investments as defined in section 1.1400Z2 (a)-1(b)(34) or whether the 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.   
     
The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. 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.   
     
Sincerely,   
     
Shareen S. Pflanz   
Chief, Branch 5   
Office of Associate Chief Counsel   
(Income Tax and Accounting)   
     
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