Late opportunity-fund self-certification was treated as timely

Plain-English summary

A partnership was formed to invest in qualified opportunity-zone property, but its accounting firm misunderstood when the entity and initial contributions had been created. Because of that misunderstanding, the firm did not seek a return extension and the partnership filed Form 8996 late. The IRS concluded that the partnership acted reasonably and in good faith and treated the filed Form 8996 as timely, making the qualified-opportunity-fund self-certification effective from the requested first month. The ruling did not decide whether the partnership or its investments otherwise satisfied the opportunity-zone requirements, and it did not treat the partnership's first-year income tax return as timely.

Ruling snapshot

• Question: Could the partnership's late Form 8996 be treated as timely after its accounting firm misunderstood its formation and contribution dates?
• Outcome: approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 202351006                                                 Third Party Communication: None
Release Date: 12/22/2023                                          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-108280-23
-----------------------------------                               Date:
                                                                  September 26, 2023




--------------------------------
--------------------------------
Re:

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

State                      =        ---------

Firm                       =        ------------------------------

Managing Member =                   ----------------------------

Members                    =         -----------------------------
-------------------------------------------------------------

Date 1                     =        --------------------------

Date 2                     =        ---------------------------

Date 3                     =        ---------------------

Month 1                    =        --------------

Month 2                    =        -----------

Year 1                     =        -------

Year 2                     =        -------

PLR-108280-23                                     2


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

This letter responds to Taxpayer’s request, dated Date 3. Pursuant to §§ 301.9100-1
and 301.9100-3,1 Taxpayer requests that its Form 8996, Qualified Opportunity Fund,
filed on Date 2 be treated as timely filed to (1) self-certify Taxpayer as a Qualified
Opportunity Fund (QOF) as defined in § 1400Z-2(d) of the Code; and (2) treat Taxpayer
as a QOF, effective as of the month Taxpayer was formed, as provided under § 1400Z-
2 and § 1.1400Z2(d)-1(a).

                                             FACTS

According to the facts and representations provided, Taxpayer was organized as a
limited liability company on Date 1 under the laws of State and is treated as a
partnership for federal income tax purposes. Taxpayer has a calendar tax year and
uses the cash method of accounting. Taxpayer was formed for the purpose of investing
in qualified opportunity zone property as such term is defined in § 1400Z-2(d)(2).
Taxpayer has two members, Members.

In Month 1 of Year 1, Managing Member, an authorized representative of Taxpayer, met
with Firm to discuss forming an entity to be a QOF. Firm believed that such entity would
be formed in Month 2 of Year 2. When preparing the Members’ federal income tax
return for Year 1, Firm learned that Taxpayer was formed in Year 1 and that
contributions to Taxpayer were made in Month 1 of Year 1.

Due to Firm’s misunderstanding as to when Taxpayer was formed and when the initial
contributions were made, Firm did not request an extension of time to file Taxpayer’s
federal income tax return for Year 1. On Date 2, Taxpayer filed its federal income tax
return, together with a Form 8996.

                                     LAW AND ANALYSIS

Section 13823(a) of Public Law 115-97, commonly known as the Tax Cuts and Jobs Act
of 2017, provides for the deferral of inclusion in gross income of eligible capital gain
reinvested in a QOF and the exclusion of capital gain from the sale or exchange of an
investment in the QOF. 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 (Commissioner) in the forms or instructions, or in publications or
guidance of the Internal Revenue Service (Service) published in the Internal Revenue
Bulletin.

1
Unless otherwise specified, all “section” references are to sections of the Internal Revenue Code of
1986, 26 U.S.C. (Code), or the income Tax Regulations or Procedure and Administration Regulations, 26
C.F.R. pt. 1 or 26 C.F.R. pt. 301.

PLR-108280-23                                 3


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 Form 8996 by the due date of its income tax return (including extensions)
because of a misunderstanding as to when Taxpayer would be formed.

Inasmuch as § 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 § 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 changes 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 granting relief will not 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.

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;

PLR-108280-23                                 4

      (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)
provides the standards the Commissioner will use to determine when the interests of
the Government are prejudiced.

Section 30.9100-3(c)(1) provides—

      (i) 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).

      (ii) 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 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.

                                     CONCLUSION

Taxpayer has satisfied the requirements of the regulations for the granting of relief, and
the Form 8996 filed on Date 2 shall be considered timely filed. Accordingly, Taxpayer
has elected to self-certify as a QOF under § 1400Z-2 and § 1.1400Z2(d)-1(a)(2)(i) as of
Month 1 of Year 1. Taxpayer should submit a copy of this letter ruling to the IRS Service
Center where Taxpayer files its income tax returns, together with a cover letter
requesting that the Service Center associate this letter ruling with Taxpayer’s Year 1
federal income tax return.

This ruling is based upon the representations made and information 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. As part of an examination process, the Service may verify the
information, representations and other data submitted.

PLR-108280-23                                  5


This ruling addresses the granting of relief under § 301.9100-3 as applied to the election
to self-certify the Taxpayer as a QOF by filing Form 8996 for Year 1.

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 have no opinion, either express or implied, concerning
whether any investments made into Taxpayer are qualifying investments as defined in
§ 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements under § 1400Z-2
of the Code and the regulations thereunder to be a QOF. In addition, we express no
opinion on whether any interest owned in any entity by Taxpayer qualifies as qualified
opportunity zone property, as defined in § 1400Z-2(d)(2), or whether such entity would
be treated as a qualified opportunity zone business, as defined in § 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
federal income tax return is considered timely filed.

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.

This letter ruling is being issued electronically in accordance with Rev. Proc. 2023-1. A
paper copy will not be mailed to the taxpayer.

                                                  Sincerely,




                                                  Mon L. Lam
                                                  Senior Counsel, Branch 4
                                                  Office of Associate Chief Counsel
                                                  (Income Tax & Accounting)

cc:       --------------------
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