Partnership receives 60 days to make a late QOF self-certification

Plain-English summary

A partnership formed to invest in qualified opportunity zone property did not file its first Form 1065 or the attached Form 8996 needed to self-certify as a qualified opportunity fund. Its members did not know the filings were required, and the tax firm handling their personal returns had not been engaged to prepare the partnership return. After an IRS data-matching letter led them to discover the omission, the partnership sought discretionary relief under the Section 301.9100 regulations. Based on the submitted facts and representations, the IRS found reasonable, good-faith conduct and no prejudice to the government. It granted 60 days to file Form 8996 with the partnership return and make the QOF election for the requested effective date. The relief extends only the Form 8996 election deadline, not the deadline for Form 1065, and the IRS did not decide whether the partnership or its investments otherwise satisfy the QOF rules.

Ruling snapshot

• Question: May a partnership receive additional time to file Form 8996 and self-certify as a qualified opportunity fund?
• Outcome: approved; 60-day extension granted for Form 8996 only
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224


 Number: 202327005                                              Third Party Communication: None
 Release Date: 7/7/2023                                         Date of Communication: Not Applicable
 Index Number: 1400Z.02-00, 9100.00-00
                                                                Person To Contact:
                                                                ------------------------, ID No. ------------------
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 ---------------------------                                    Telephone Number:
 -------------------------------------                          --------------------
 -------------------------------------                          Refer Reply To:
                                                                CC:ITA:B08
                                                                PLR-120476-22
                                                                Date:
                                                                April 11, 2023




                                                    LEGEND

                      Taxpayer           =   ------------------------------------------------------------
                      State              =   ------
                      Members            =   ----------------------------------
                      Counsel            =   --------------------------------
                      Practitioner       =   ----------------
                      Firm               =   -------------------
                      Date 1             =   -----------------------
                      Date 2             =   -------------------
                      Date 3             =   --------------------------
                      Date 4             =   ------------------
                      Year 1             =   -------
                      Year 2             =   -------




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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of
the Procedure and Administration Regulations, to (1) make a timely election under
section 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations to be certified as a
PLR-120476-22                                2

qualified opportunity fund (QOF), as defined in section 1400Z-2(d) of the Internal
Revenue Code, and (2) for Taxpayer to be treated as a QOF, effective for its taxable
year ended Date 3, effective as of Date 2, as provided by section 1400Z-2(d) and
section 1.1400Z2(d)-1(a).

                                         FACTS

According to the affidavits and additional information provided to us, Taxpayer has
represented that the facts are as follows. Taxpayer is a limited liability company
organized under the laws of State and was formed on Date 2. Taxpayer is classified as
a partnership for U.S. federal income tax purposes and was formed for the purpose of
investing in qualified opportunity zone property and serving as a QOF.

In Year 1, Members recognized gain from the sale of a limited liability company, treated
as a partnership. Members engaged Counsel to form a qualified opportunity fund to
reinvest a portion of the proceeds. On behalf of Members, Counsel organized Taxpayer
as a partnership effective Date 2 for the purpose of operating as a qualified opportunity
fund. Taxpayer was required to file Form 1065, U.S. Return of Partnership Income, for
its Year 1 tax year solely for the purpose of attaching and filing a Form 8996, Qualified
Opportunity Fund.

Members were unaware of the need to file Form 1065 and Form 8996. Members used
Firm for their personal filing obligations since Year 2. Members provided Practitioner, a
tax partner at Firm, with information to file their individual tax return for Year 1.
Practitioner was aware of the existence of Taxpayer, but was not engaged to file
Taxpayer’s return for Year 1.

Shortly after Date 4, Members received a data matching letter, Form 6502, from the
Service with respect to their Year 1 individual income tax return. Upon investigation,
Members learned that Taxpayer had not filed a Year 1 Form 1065, nor had Taxpayer
filed a Form 8996. The Taxpayer, therefore, did not make a valid election to self-certify
as a QOF on Form 8996.

Upon learning that the Year 1 Forms 1065 and 8996 were not timely filed, Firm advised
Taxpayer to file a private letter ruling request. Taxpayer then filed this ruling request
seeking extension of time to file Form 8996 for Taxpayer’s year ending Date 3, pursuant
to sections 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations. Taxpayer has not yet filed its Forms 1065 and 8996 for Year 1.

                                  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 the rules for an entity to self-certify as a QOF.
Section 1.1400Z2(d)-1(a)(2)(i) provides that the entity electing to be certified as a QOF
PLR-120476-22                                 3

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, 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).

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 section 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-120476-22                                 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 section 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. Taxpayer did not file
Taxpayer’s Year 1 Form 8996, because Taxpayer was not aware of the requirement
and Firm was not engaged to prepare such return. Accordingly, based solely on the
facts and information submitted, and the representations made in the ruling request, this
letter ruling grants Taxpayer an extension of 60 days from the date of this letter ruling to
file a Form 8996 to make the election to self-certify as a QOF under section 1400Z-2
and section 1.1400Z2(d)-1(a)(2)(i). The election must be made on a completed Form
8996 attached to the Taxpayer’s tax return. This letter ruling grants an extension of time
to file a Form 8996. This letter ruling does not grant an extension of time to file
Taxpayer’s Form 1065.

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.
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 Taxpayer are qualifying investments as defined in
section 1.1400Z2(a)-1(b)(34) or whether 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.
PLR-120476-22                                  5

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 representatives.

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.




                                           Sincerely,



                                           Amy J. Pfalzgraf
                                           Branch Chief (Acting), Branch 5
                                           Office of Associate Chief Counsel
                                           (Income Tax and Accounting)



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