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QOF self-certification election. On Oct.
Despite a relatively simple self-certification 7, 2022, the IRS released one more letter
ruling — arguably, its broadest yet on
requirement, the QOZ program is fairly the topic of late elections by an eligible
complex, and many taxpayers and their entity to become a QOF — involving a
representatives have filed tax returns without partnership representative and a member
of the QOF, neither of whom had any
the requisite self-certification form. educational or professional background
that focused on taxation and who failed
to make the QOF self-certification elec-
Despite this relatively simple self- taxpayer (1) uses hindsight in requesting tion because the taxpayer was unaware
certification requirement, the QOZ relief; (2) chose not to make the elec- of the necessity for the election.
program is fairly complex, and many tion despite being fully informed in all Then, in three further rulings re-
taxpayers and their representatives have material respects of the required election leased on Oct. 28, Nov. 11, and Nov. 18,
filed tax returns without the requisite and related tax consequences; or (3) is 2022, the IRS excused various failures by
self-certification form. When an eligible seeking to alter a return position for taxpayers’ professional tax preparers and
entity seeking to qualify as a QOF which an accuracy-related penalty has advisers to properly assist the eligible
for a particular year fails to timely file been or could be imposed at the time the entities to self-certify as QOFs in their
Form 8996, Qualified Opportunity Fund, taxpayer requests relief. initial tax years. There are now at least
with its timely filed federal income tax Nevertheless, in a growing number 39 letter rulings released since May 2020
return (including extensions) for that of IRS letter rulings addressing a wide that have permitted late self-certification
year, the only option for that entity to variety of situations, the IRS has shown elections by eligible entities seeking to
become a self-certified QOF is to make a willingness to work with taxpayers be classified as QOFs in various circum-
an IRS letter ruling request for relief to allow late elections by eligible enti- stances, reflecting the complex nature of
under Regs. Secs. 301.9100-1 through ties under Regs. Secs. 301.9100-1 and the QOZ tax program and the federal
301.9100-3. Those provisions establish 301.9100-3 to (1) make a timely election government’s willingness to excuse these
the standard that the IRS will use to under Regs. Sec. 1.1400Z2(a)-1(a)(2) to foot faults.
determine whether to grant an entity be certified as a QOF, as defined in Letter Ruling 202239001 (released
an extension of time to make a regula- Sec. 1400Z-2(d); and (2) for the tax- Sept. 30, 2022) concerned an eligible en-
tory election, including to self-certify as payers to be treated as a QOF, effective tity organized as a domestic, multimem-
a QOF. as of the month in which the entities ber limited liability company (LLC)
Regs. Sec. 301.9100-3(a) provides received qualifying equity investments whose managing member hired an
that requests for extensions of time from taxpayers intended to benefit from attorney to consult on matters relating
for regulatory elections (other than favorable income tax treatment under to the formation of the taxpayer and the
automatic extensions) will be granted Secs. 1400Z-2(a) through (c). requirements for the taxpayer to become
when the taxpayer provides evidence In six recent IRS letter rulings a self-certified QOF. However, the law-
(including affidavits from the taxpayer involving tax partnerships that each yer did not advise the entity’s managing
and the taxpayer’s tax preparers and/or intended to be treated as QOFs for member as to the timing for filing the
advisers) to establish that the taxpayer purposes of Sec. 1400Z-2(d)(1) during required Form 1065, U.S. Return of Part-
acted reasonably and in good faith and the month in which they received a tax- nership Income, with which Form 8996 is
the grant of relief will not prejudice the deferred investment from an eligible tax- filed, and assumed that the entity’s man-
government’s interests. While a taxpayer payer, the partnerships failed to timely ager was consulting with a tax preparer
is deemed to have acted reasonably and file Form 8996 with a timely federal on that matter. The lawyer provided a
in good faith if, among other reasons, income tax return due to a lawyer’s, an signed affidavit to the IRS asserting the
the taxpayer requests relief before the accountant’s, or a partnership represen- entity’s managing member was not expe-
IRS discovers the failure to make the tative’s error, resulting in their technical rienced with Form 8996 and that, given
regulatory election, or failed to make the failure to self-certify as QOFs. On Sept. the complexity of the QOF regulations,
election because, after exercising reason- 30, 2022, the IRS released two letter rul- the scope of the lawyer’s discussion with
able diligence, the taxpayer was unaware ings, each involving taxpayers that relied the entity’s managing member could
of the necessity for the election, the on qualified tax professionals to properly have included a discussion of the timing
taxpayer will not be granted relief if the make or advise the taxpayers to make the of the filing of the taxpayer’s Form 1065

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