Late opportunity-fund self-certification was treated as timely

Plain-English summary

A partnership formed to invest in qualified opportunity-zone property knew it needed to file Form 8996 for its first year and hired advisers to handle the filing. An administrative oversight among the advisers caused the partnership to miss both its return-extension filing and the Form 8996 deadline. After discovering the problem, the partnership filed Form 1065 with Form 8996 and requested relief. The IRS found that the partnership acted reasonably and in good faith and treated the attached Form 8996 as timely filed, making its qualified-opportunity-fund self-certification effective for the requested first year. The ruling did not decide whether the partnership or its investments otherwise met the substantive opportunity-zone requirements.

Ruling snapshot

• Question: Could the partnership's late Form 8996 be treated as timely after its advisers missed the filing-extension deadline?
• 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: 202352008                                              Third Party Communication: None
Release Date: 12/29/2023                                       Date of Communication: Not Applicable
Index Number: 1400Z.02-00, 9100.00-00
                                                               Person To Contact:
                                                               ------------------------, ID No. -----------------
------------------------------------                           Telephone Number:
------------------------------------------------------------   --------------------
------------------------                                       Refer Reply To:
----------------------------                                   CC:ITA:B08
----------------------------------                             PLR-107707-23
                                                               Date:
                                                               October 03, 2023




LEGEND

Taxpayer                 = ------------------------------------------------------------------------------------
                           --------------------------
State                    = --------------------
CPA                      = ------------------------------------------------
Investment               = ---------------------
Advisor
Attorneys                =    -----------------------------------
Advisors                 =    ------------------------------------------------
Owners                   =    ---------------------------------
President                =    ----------------
Date 1                   =    ---------------------
Date 2                   =    --------------------------
Date 3                   =    --------------------------
Date 4                   =    --------------
Date 5                   =    -----------------------
Year 1                   =    -------
Year 2                   =    ------



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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests relief for an extension of time under sections 301.9100-1 and

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301.9100-3 of the Procedure and Administration Regulations, to (1) make a timely
election under section 1.1400Z2(d)-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, 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) of the
Income Tax Regulations.


                                         FACTS

According to the affidavits and additional information provided, Taxpayer is a limited
liability company organized under the laws of State. 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. Taxpayer’s
annual accounting period is the calendar year and uses the cash method of accounting.

Taxpayer is owned by Owners and President handles the business of Taxpayer.
President, Taxpayer, and its Advisors were aware of the requirement to file Form 8996,
Qualified Opportunity Fund (Form 8996) to be treated as a QOF in the year of
formation. Taxpayer retained Advisors so that Taxpayer could comply with the Form
8996 requirement and the expectation was to file for an automatic extension of time to
file Taxpayer's income tax return for Year 1 (as Owners also extended their individual
income tax return for Year 1). Taxpayer contacted CPA prior to the deadline for filing an
automatic extension of time to file Taxpayer's income tax return for Year 1 to confirm
compliance with Taxpayer's tax obligations. However, because of an administrative
oversight between the Advisors, no such extension of time to file Taxpayer's income tax
return for Year 1 was filed. Consequently, the election to self-certify as a QOF on the
Form 8996 was not timely made.

On Date 4, upon learning that Taxpayer's Year 1 Forms 1065, U.S. Return of
Partnership Income and 8996 were not timely filed, Taxpayer discussed the situation
with Advisors and instructed Advisors to prepare and file this request for a ruling.
Taxpayer then filed this ruling request seeking an extension of time to file Form 8996 for
Taxpayer’s Year 1 tax year. Taxpayer also filed the Year 1 Form 1065 with an attached
Form 8996 on Date 5.

Taxpayer represents that granting relief under section 301.9100-3 of the Procedure and
Administration Regulations will not result in a lower tax liability for the year affected by
the election.

                                 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.

PLR-107707-23                                3

Section 1.1400Z2(d)-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 Serv ice
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 Form 1065 and Form 8996 by the due date of its Federal income tax return
(including extensions) due to administrative oversight by Advisors.

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

PLR-107707-23                                 4

      (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.

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. Consequently, the Form 8996
attached to Taxpayer’s return for Year 1, filed on Date 5, 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 for 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
that the Service associate this ruling with the Year 1 return.

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 the taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be a QOF. Further, we also express
no opinion on whether any interest owned by Taxpayer qualifies as qualified opportunity
zone property, as defined in section 1400Z(d)(2), or whether such interest 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

PLR-107707-23                                  5

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.

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

A copy of this letter must be attached to any income 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,




                                          Shareen S. Pflanz
                                          Branch Chief, Branch 8
                                          Office of Associate Chief Counsel
                                          (Income Tax and Accounting)



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