Partnership receives time for opportunity-fund certification

Plain-English summary

A partnership was formed and funded to invest in a qualified opportunity zone business, but its accounting officer believed no return was required for the first year because the partnership had no profit or loss activity. As a result, the partnership did not timely file its return or Form 8996 to self-certify as a qualified opportunity fund. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file an amended return with Form 8996, while expressing no opinion on whether the entity or its investments otherwise satisfied the qualified opportunity fund rules.

Ruling snapshot

• Question: Could the partnership receive an extension to make its qualified opportunity fund self-certification?
• Outcome: Approved, with 45 days to file the election on Form 8996.
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(a)-1(a)(2)(i), 1.1400Z2(d)-1, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202120010
Release Date: 5/21/2021
Person To Contact:
Index Number: 1400Z.02-00 --------------------, ID No. ------------
Telephone Number:
--------------------------------- -------------------
----------------------------------------------- Refer Reply To:
-------------------------------------- CC:ITA:5
-------------------------------- PLR-119294-20
Date:
February 24, 2021

Legend

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

Tax Advisor = --------------------
B = ----------------------------
State Z = -----------------------------------------------------------------------
Accounting Firm = ------------------------
Entity C = --------------------------------------
Date 1 = ------------------
Date 2 = --------------------
Date 3 = --------------------------
Date 4 = ---------------------
X% = ------
Year 1 = -------

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

This ruling responds to the Taxpayer’s request dated Date 1. Specifically, 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.

                                                FACTS

PLR-119294-20 2

Taxpayer was organized as a limited liability company under the laws of State of Z on
Date 2 and is classified as a partnership for Federal income tax purposes. Taxpayer
was organized for the purpose of investing in qualified opportunity zone property as
defined in section 1400Z-2(d)(2). Taxpayer’s year end for maintaining its accounting
books and records and filing its Federal income tax return is Date 3. Taxpayer’s
method of accounting for maintaining its accounting books and records and filing its
Federal income tax return is the accrual method of accounting. Taxpayer is requesting
an extension of time under section 301.9100-3(b)(1) of the Income Tax Regulations to
self-certify as a Qualified Opportunity Fund under section 1.1400Z2(d)-1.

Taxpayer was formed with the intent to be the X% owner of Entity C. Entity C is an LLC
classified as a partnership for federal income tax purposes and was formed for the
purpose of operating as a Qualified Opportunity Zone Business as that term is defined
in § 1400Z-2(d)(3).

Taxpayer intended to self-certify as a QOF by filing Form 8996, Qualified Opportunity
Fund, with its first form 1065, U.S. Return of Partnership Income, which it believed
needed to be filed for the year ending Date 3. Taxpayer’s director and controller of
corporate and development accounting, B thought that a Year 1 Form 1065 was not
required because Taxpayer had no profit and loss activity for the year. B did not know
that because Taxpayer was formed and funded in Year 1 that it would need to file for
that year in order to self-certify as a QOF. Taxpayer’s Form 1065 for the year ending
Date 3 was due on or before Date 4. Taxpayer did not timely file form 7004, Application
for Automatic Extension of Time to File Certain Business Income Tax, Information and
Other Returns because it did not learn until after the fact that a Year 1 Form 1065 was
required. Taxpayer did ultimately become aware when it provided information about
itself to the income tax preparer, Accounting Firm. Taxpayer has not yet filed its Form
1065 for the year ending Year 1.

Taxpayer requests a ruling that based upon the facts and information submitted in
connection with the request, Taxpayer has acted reasonably and in good faith; and that
the granting of relief would not prejudice the interests of the government.

                              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.
PLR-119294-20 3

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 his belief that submission was not required for the
year at issue.

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.

PLR-119294-20 4

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,
we grant the taxpayer an extension of 45 days from the date of this letter ruling to file an
amended return to make the election under section 1400Z-2 and section 1.1400Z2(d)-
1(a)(2)(i). The election is to be made on Form 8996.

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 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)(3) 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.
PLR-119294-20 5

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

                                   Sincerely,



                                   Shareen S. Pflanz
                                   Chief, Branch 5
                                   Office of Associate Chief Counsel
                                   (Income Tax & Accounting)

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