Late-filed qualified opportunity fund self-certification treated as timely

Plain-English summary

A partnership was formed to qualify as a qualified opportunity fund and invest indirectly in qualified opportunity zone property. Its managing member hired a law firm to form the entity but mistakenly believed the firm would also handle federal tax compliance. Because of that misunderstanding, the partnership did not timely file its first Form 1065 or the attached Form 8996 self-certification. After the managing member and accounting adviser discovered the failure, the adviser promptly filed both forms and the law firm requested regulatory relief. The IRS concluded that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It treated the already filed Form 8996 as timely and recognized the election to self-certify as a qualified opportunity fund beginning in the month the partnership was formed, without deciding whether the partnership or its investments otherwise met the opportunity-zone rules.

Ruling snapshot

• Question: May the partnership's late-filed Form 8996 be treated as timely so it self-certifies as a qualified opportunity fund from its formation month?
• Outcome: Approved, the filed Form 8996 is treated as timely
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202349007
Third Party Communication: None
Release Date: 12/8/2023
Date of Communication: Not Applicable
Index Number: 9100.00-00, 1400Z.02-00,
1400Z.01-00, 1400Z.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:ITA:B04
PLR-105636-23
Date:
September 11, 2023

LEGEND

State Z = -------------
X = ---
Tax Year = ------------------
Month A = ---------
Taxpayer = ------------------------------
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Individual = -------------------
Advisor = ------------------------------
Attorney 1 = ------------------------
Attorney 2 = -------------
Accounting = ------------------------------
Firm
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Law Firm = ------------------------------
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Year 1 = -------
Year 2 = -------
Date 1 = ------------------
Date 2
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Date 3 = ---------------------------
Date 4 = -------------------

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This letter responds to Taxpayer’s request, dated Date 4, for a private letter ruling. Specifically, Taxpayer requests relief, under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, to allow Taxpayer’s Form 8996, Qualified
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Opportunity Fund, filed on Date 3 to be treated as timely for purposes of making the election to: (1) self-certify Taxpayer as a qualified opportunity fund (“QOF”), as defined in § 1400Z-2(d) of the Internal Revenue Code; and (2) be treated as a QOF, effective as of the month Taxpayer was formed, as provided under § 1400Z-2(d) and § 1.1400Z(d)- 1(a) of the Income Tax Regulations. 1

This letter ruling 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.

FACTS

Based on the provided information and representations, Taxpayer was organized, on Date 1, as a limited liability company under the laws of State Z and is classified as a partnership for federal income tax purposes. Individual is the managing member of Taxpayer. As stated in Taxpayer’s operating agreement, Taxpayer was organized for the purpose of qualifying as a QOF and investing indirectly in qualified opportunity zone property as defined in § 1400Z-2(d)(2). Taxpayer uses the cash method of accounting and has a tax year end of Tax Year. Individual engaged Attorney 1 of Law Firm, to assist in the formation of Taxpayer. As part of the engagement, Attorney 1 prepared the operating agreement and filed the necessary documentation with State Z.

Individual has been a client of Accounting Firm, providing Individual bookkeeping and tax services for over X years. On Date 2, Individual informed Advisor, the managing partner of Accounting Firm, of Taxpayer’s formation but did not engage Advisor to prepare and file Taxpayer’s tax returns. Individual erroneously believed that the Law Firm also had been engaged to provide tax-compliance services. Due to the misunderstanding between Individual and Attorney 1, Taxpayer failed to file Taxpayer’s Year 1 Form 1065, U.S. Return of Partnership Income, and Form 8996 by the statutory deadline.

In Month A of Year 2, Individual and Advisor discovered Taxpayer’s failure to timely file. Following the discovery, Individual, Advisor, and Attorney 1 met to discuss how to proceed. Based on this discussion, Individual retained Advisor to prepare the Taxpayer’s Year 1 Form 1065, including the Form 8996, both of which were filed on Date 3. Shortly thereafter, Attorney 2 of Law Firm prepared this request for regulatory relief on behalf of Taxpayer.

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 Internal Revenue Service 1 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301) as applicable.
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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 timely file a Form 8996 due to the misunderstanding between Individual and Attorney 1 as to the latter’s responsibility to prepare and file Taxpayer’s federal tax returns. After the discovery of the failure, Advisor promptly filed Taxpayer’s Year 1 Form 1065, with an attached Form 8996.

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 § 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.

Section 301.9100-1(b) defines the term “regulatory election” as including any election whose due date is prescribed by a regulation published in the Federal Register. 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 § 301.9100-1(b)(1).

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.

Under § 301.9100-3(b)(2), a taxpayer, however, is not considered to have reasonably relied on a qualified tax professional if the taxpayer knew or should have known that the
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professional was not competent to render advice on the regulatory election or was not aware of all relevant facts.

Under § 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 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.

Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable extension of time to make a 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.

CONCLUSION

Based on the facts and information submitted and the representations made, we conclude that that Taxpayer has acted reasonably and in good faith, and that the granting of relief would not prejudice the interests of the Government.

Accordingly, Taxpayer has satisfied the requirements of the regulations for granting of relief. The Form 8996, attached to Taxpayer’s Year 1 Form 1065 and filed on Date 3, is considered timely filed, and Taxpayer has thereby made the election under § 1400Z-2 and § 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF as of the month of formation in Year 1. Taxpayer should submit a copy of this letter ruling to the Service Center where Taxpayer files its returns along with a cover letter requesting the Service associate this ruling with Taxpayer’s Year 1 return.
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This ruling is based upon facts and representations submitted by Taxpayer and accompanied by a penalty of perjury statement 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 § 301.9100-3 relief as applied to the election to self-certify Taxpayer as an QOF by filing Form 8996 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 § 1.1400Z-2(a)-1(b)(34), or whether, Taxpayer met or meets the requirements under § 1400Z-2 and the regulations thereunder to be a QOF. Further, we express no opinion on whether any interest indirectly owned by Taxpayer qualifies as qualified opportunity zone property, as defined in section 1400Z-2(d)(2), or whether the indirect interest would be treated as a qualified opportunity zone business, as defined in section 1400Z-2(d)(3). Nor do we express any opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the Internal Revenue Code or Treasury 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) provides that it may not be used or cited as precedent. In accordance with the Form 2848, Power of Attorney and Declaration of Representative on file with this office, a copy of this letter is being sent to Taxpayer’s authorized representative.

Sincerely,

Alexa T. Dubert
Senior Technician Reviewer
Office of Associate Chief Counsel
(Income Tax & Accounting)

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