Fund receives more time to self-certify as a qualified opportunity fund

Plain-English summary

A limited liability company taxed as a partnership was formed to operate as a qualified opportunity fund and invest in qualified opportunity zone property. It relied on a tax adviser to make the required annual self-certification elections, but the adviser failed to timely file Forms 8996 for two years because of administrative challenges and inadequate internal controls. A successor accounting firm discovered the omissions while preparing a later return. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government's interests. It gave the taxpayer 60 days to attach completed Forms 8996 to amended returns for the two years and self-certify as a QOF beginning in the month it was formed. The IRS did not determine whether the taxpayer or its investments otherwise met the opportunity-zone requirements.

Ruling snapshot

• Question: May the taxpayer make late QOF self-certification elections after its tax adviser failed to file Forms 8996?
• Outcome: Approved, with 60 days to file
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a) and 301.9100-3

Full text (IRS public release)

   Internal Revenue Service                                        Department of the Treasury
                                                                   Washington, DC 20224

   Number: 202343026                                               Third Party Communication: None
   Release Date: 10/27/2023                                        Date of Communication: Not Applicable
   Index Number: 9100.00-00, 1400Z.02-00
                                                                   Person To Contact:
   ---------------------                                           ----------------, ID No. -----------------
   ------------------------------------                            Telephone Number:
   -------------------------                                       --------------------
   -----------------------------------------                       Refer Reply To:
                                                                   CC:ITA:B04
                                                                   PLR-103300-23
                                                                   Date:
                                                                   August 02, 2023




   Taxpayer                    =               --------------------------------------------------------------
   Tax Advisor                 =               -------------------------
   Parent Company              =               ------------
   Accounting Firm             =               ---------------------------------
   Date 1                      =               -------------------
   Date 2                      =               ----------------------
   Date 3                      =               -------------------
   Date 4                      =               -----------------------
   Year 1                      =               -------
   Year 2                      =               -------
   Year 3                      =               -------
   State Y                     =               -------------


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

This letter responds to Taxpayer's request, dated Date 4, and supplemental
correspondence. Specifically, Taxpayer requests an extension of time to file Forms
8996, Qualified Opportunity Fund, for purposes of making the election, under section
1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations, (1) to be certified as a qualified
opportunity fund (QOF), as defined in section 1400Z-2(d) of the Internal Revenue Code 1
(Code), and (2) to be treated as a QOF, effective as of the month Taxpayer was formed,
as provided under section 1400Z-2(d) and section 1.1400Z2(d)-1(a).

This letter is being issued electronically in accordance with Rev. Proc. 2023-1, 2023-1
I.R.B. 1. A paper copy will not be mailed to Taxpayer.




1
 Unless otherwise specified, all “section” references are to sections of the Internal Revenue Code
or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).

PLR-103300-23                                2

                                         FACTS

According to the facts and representations provided, Taxpayer was organized as a
limited liability company on Date 1 under the laws of State Y and is classified as a
partnership for U.S. federal income tax purposes. Taxpayer was organized for the
purpose of being a qualified opportunity fund and to invest in qualified opportunity zone
property.

Taxpayer relied on Tax Advisor to advise on the manner of making a proper election for
Taxpayer to be treated as a QOF as of the month Taxpayer was formed for Year 1 and
Year 2. Taxpayer provided Tax Advisor with all pertinent facts necessary to make the
elections. Due to administrative challenges and insufficient internal control procedures,
Tax Advisor did not timely file Taxpayer’s Forms 8996 for Year 1 or Year 2.

On Date 2, Tax Advisor was acquired by Parent Company and recommenced
operations as Accounting Firm. Taxpayer retained Accounting Firm as its tax preparer
and advisor beginning Date 2. Accounting Firm discovered that Forms 8996 for Year 1
and Year 2 had not been timely filed on or about Date 3 while preparing Taxpayer’s
Year 3 tax return.

                                 LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Section 1.1400Z2(d)-1(a)(2)(i) provides that the self-certification
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 IRS 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). The information provided indicates that Taxpayer did
not file its Forms 8996 by the due date of its Year 1 or Year 2 income tax returns
(including extensions) as a result of an administrative lapse by Tax Advisor.

Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF
and electing to self-certify as a QOF. As such, these elections are regulatory elections,
as defined in section 301.9100-1(b).

Sections 301.9100-1 through 301.9100-3 provide the standards 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

PLR-103300-23                                  3

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;

(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.

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.

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.

PLR-103300-23                                 4


                                     CONCLUSION

Based on the facts and information submitted in connection with this request, we
conclude Taxpayer has acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the Government. Accordingly, Taxpayer is
granted 60 days from the date of this letter to file Forms 8996 for Year 1 and Year 2 to
make the election to self-certify as a QOF under section 1400Z-2 and section
1.1400Z2(d)-1(a)(2)(i) as of the month in which Taxpayer was formed. The elections
must be made on completed Forms 8996 and attached to Taxpayer’s respective
amended tax returns for Year 1 and Year 2.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by penalty of perjury statements executed by the appropriate parties.
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.

This ruling addresses the granting of section 301.9100-3 relief as applied to the
elections to self-certify Taxpayer as a QOF by filing Forms 8996 for Year 1 and Year 2.

Except as expressly provided herein, no opinion is either expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we have 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
and structure under section 1400Z-2 and the regulations thereunder to be a QOF. In
addition, we also express no opinion on whether any interest owned in any entity by
Taxpayer qualifies as qualified opportunity zone property, as defined in section 1400Z-
2(d)(2), or whether such entity would be treated as a qualified opportunity zone
business, as defined in section 1400Z-2(d)(3). 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. We
express no opinion as to whether Taxpayer’s Year 1 or Year 2 Federal income tax
returns are considered timely filed.

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. Section 6110(k)(3) provides
that it may not be used or cited as precedent. Enclosed is a copy of the letter ruling
showing the deletions proposed to be made when it is disclosed under section 6110.

PLR-103300-23                              5


Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.

                                              Sincerely,




                                              Stephen J. Toomey
                                              Senior Counsel, Branch 4
                                              Office of Associate Chief Counsel
                                              (Income Tax & Accounting)



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