Late-filed qualified opportunity fund election was treated as timely

Plain-English summary

A limited partnership was formed to invest in qualified opportunity zone property and serve as a qualified opportunity fund. Its general partner asked its accountant to extend the partnership's first federal return, but the accountant did not receive the entity's identification number and overlooked the new partnership because it was not on the firm's filing list. The partnership therefore filed Form 1065 and Form 8996 late, then requested relief after discovering the error. The IRS found reasonable reliance on a qualified tax professional and no prejudice to the government. It treated the already-filed Form 8996 as timely and recognized the partnership's self-certification election for its first year, without deciding whether its investments or operations otherwise satisfied the opportunity-zone rules.

Ruling snapshot

• Question: Could a partnership's late Form 8996 be treated as timely when its accountant overlooked the requested filing extension?
• Outcome: approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                               Department of the Treasury
                                                        Washington, DC 20224

 Number: 202402004                                      Third Party Communication: None
 Release Date: 1/12/2024                                Date of Communication: Not Applicable


 Index Number: 1400Z.02-00, 9100.00-00                  Person To Contact:
 ----------------------------                           ----------------------, ID No. ------------------
 --------------------------------------------           Telephone Number:
 -------------------------                              --------------------
                                                        Refer Reply To:
 In Re: ----------------------------                    CC:ITA:5
                                                        PLR-108455-23
                                                        Date:
                                                        October 17, 2023




Dear ---------------

                                               LEGEND

                       Taxpayer                   = ---------------------------
                                                    --------------------------
                       State                      = --------
                       Taxpayer’s General Partner = ----------------------
                       Firm                       = ------------------------------------
                       CPA                        = ------------------------------
                       Date 1                     = --------------------------
                       Date 2                     = ------------------
                       Date 3                     = --------------------------
                       Date 4                     = ---------------------
                       Date 5                     = ---------------------
                       Date 6                     = ---------------------------
                       Year 1                     = -------

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
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).

PLR-108455-23                                 2

                                          FACTS

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

On Date 4, Taxpayer’s General Partner emailed CPA regarding the preparation of
Taxpayer’s Federal income tax return for Year 1, the year Taxpayer was formed.
Taxpayer’s General Partner requested that CPA file a Form 7004, Application for
Automatic Extension of Time to File Certain Business Income Tax, Information, and
Other Returns, for Year 1. On Date 5, an employee of CPA contacted Taxpayer’s
General Partner requesting Taxpayer’s EIN, which was not received. Because Taxpayer
was a new entity, it was not in CPA’s tax return tickler list to check off that an extension
had been filed by Date 5 and, consequently, was overlooked by CPA’s tax manager.
CPA did not file an extension for Taxpayer on or before Date 5, the due date for filing
Taxpayer’s Year 1 Form 1065, U.S. Return of Partnership Income. Consequently,
Taxpayer’s Forms 1065 and 8996, Qualified Opportunity Fund, were not timely filed.

CPA filed Taxpayer’s Year 1 Form 1065, including Form 8996, on Date 6. Upon learning
that the Year 1 Form 1065 and Form 8996 were not timely filed, Taxpayer engaged
Firm 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.

                                   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)
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 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). The information provided indicates that CPA did not
file Taxpayer’s Form 8996 due to miscommunication between Taxpayer’s General
Partner and CPA.

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).

PLR-108455-23                                 3


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.

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

PLR-108455-23                                  4

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 reasonably relied
on a qualified tax professional, and the tax professional failed to make, or advise
Taxpayer to make, the election. Consequently, the Form 8996 attached to Taxpayer’s
Form 1065 for Year 1, filed Date 6, is considered timely filed, and Taxpayer has thereby
made the election under sections 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. 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.

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.

PLR-108455-23                                 5

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,



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



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