Special Rules for Capital Gains Invested in Opportunity Zones

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202310002
Release Date: 3/10/2023
Index Number: 1400Z.02-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---, ID No. ---
Telephone Number:
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Refer Reply To:
CC:ITA:B04
PLR-110739-22
Date:
December 12, 2022
Taxpayer = ---
Tax Advisors = ---
State X = ---
Date 1 = ---
Date 2 = ---
Date 3 = ---
Date 4 = ---
Date 5 = ---
Month 1 = ---
Month 2 = ---
Year 1 = ---
Dear ---:
This responds to Taxpayer’s request dated Date 1, seeking 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 the Taxpayer as a Qualified Opportunity Fund (QOF) defined in section 1400Z-2(d) of the Internal Revenue Code (Code) and (2) for the Taxpayer to be treated as a QOF, effective as of the month the taxpayer was formed, as provided under Code § 1400Z-2 and Treas. Reg. § 1.1400Z2(d)-1(a).

# FACTS

Taxpayer was organized as a limited liability company on Date 2 under the laws of State
X and is classified as a partnership for federal income tax purposes. Taxpayer originally intended to operate as a qualified opportunity zone business and engaged Tax Advisors for assistance in doing so. After formation, during Month 1, Taxpayer altered its strategy to operate as a QOF, as defined in § 1400Z-2(d) of the Code. This shift in strategy was not communicated with Tax Advisors. In Month 2, Taxpayer solicited PLR-110739-22 2 contributions from potential investors and an initial investment in Taxpayer was made on Date 3. It has been represented that Taxpayer intended to be a QOF during Month 1.
Due to a mistake in belief regarding the filing deadline, Taxpayer failed to timely file its
Year 1 tax return and accompanying Form 8996 to self-certify as a QOF. Taxpayer became aware of its failure when it subsequently contacted Tax Advisors to prepare its Year 1 tax return. According to Taxpayer, with assistance from Tax Advisors Taxpayer’s Year 1 Form 1065 was filed on Date 4, and an amended return including Taxpayer’s Form 8996 (self-certifying the Taxpayer as a QOF as of Month 1) was filed on Date 5.

# LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the certification of QOFs. Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i) provides that the selfcertification 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, 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 Year 1 income tax return due to a mistake in belief regarding the filing deadline and subsequent lack of communication with Tax Advisors.
Because Treas. Reg. § 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 §301.9100-1(b).
Treas. Reg. §§ 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. 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 provides evidence (including affidavits) to establish that the taxpayer acted reasonably and in good faith and granting 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;
PLR-110739-22 3

(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 Treasury Regulation § 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.
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 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 late-filed Form 8996, certifying the Taxpayer as a QOF as of Month 1 is considered timely filed.

# CAVEATS

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 PLR-110739-22 4 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.
This ruling addresses the granting of relief under Treas. Reg. § 301.9100-3 as applied to the election to self-certify the Taxpayer as a QOF by filing Form 8996, Qualified Opportunity Fund, 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 also 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.
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. Code § 6110(k)(3) 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 Applicants’ authorized representative.
This letter ruling is being issued electronically in accordance with Rev. Proc. 2022-1,
2022-1 I.R.B. 1. A paper copy will not be mailed to Taxpayer.
Sincerely,
R Lisa Mojiri-Azad
Senior Technician Reviewer, Branch 4
Office of Associate Chief Counsel
(Income Tax & Accounting) cc: