Partnership received 60 days to make its first qualified opportunity fund election

Plain-English summary

A partnership was formed to serve as a qualified opportunity fund and received investor contributions during its first year, but it had no income or loss activity. Its accounting firm mistakenly believed that no return was required for that year, so it did not file Form 1065 or the Form 8996 needed to self-certify as a qualified opportunity fund. The firm later discovered the error, and the partnership promptly sought relief. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file Form 8996 with an amended return or administrative adjustment request for the first year, but did not extend the deadline for Form 1065 or decide whether the partnership and its investments otherwise qualified under the opportunity-zone rules.

Ruling snapshot

• Question: Could the partnership receive extra time to make its first-year qualified opportunity fund self-certification on Form 8996?
• 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: 202402005                                             Third Party Communication: None
 Release Date: 1/12/2024                                       Date of Communication: Not Applicable
 1400Z.02-00, 9100.00-00
                                                               Person To Contact:
                                                               ----------------, ID No. -----------------
 ----------------------------------------------------------    Telephone Number:
 ------------------------------------------                    --------------------
 ----------------------------                                  Refer Reply To:
 ----------------------------------                            CC:ITA:B08
                                                               PLR-108640-23
                                                               Date:
                                                               October 19, 2023




Taxpayer                  =        ----------------------------------------------------------
Submission Date           =        -------------------------
Date 1                    =        ---------------------
Date 2                    =        ---------------------------
State Z                   =        -------------
Year 1                    =        -------
Amount 1                  =        ---------------
Date 3                    =        --------------------
Firm                      =        -------------------------------------
Year 2                    =        -------
Year 3                    =        -------
Year 4                    =        -------

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

This letter responds to Taxpayer’s request for a letter ruling requested on Submission
Date. Taxpayer requests relief under section 301.9100-3 of the Procedure and
Administration Regulations. Specifically, Taxpayer requests an extension of time to file
a self-certifying election on Form 8996, Qualified Opportunity Fund, (Form 8996) for
Taxpayer to be treated as a qualified opportunity fund (QOF), as defined in section
1400Z-2(d) of the Internal Revenue Code and section 1.1400Z2(d)-1(a) of the Income
Tax Regulations effective as of Date 1.

                                                     FACTS

Based on the affidavits and additional information provided, Taxpayer has represented
the facts are as follows: Taxpayer is a limited liability company, formed on Date 2 under
the laws of the State Z, and taxed under Federal law as a partnership. Taxpayer’s
overall method of accounting is an accrual method of accounting, and Taxpayer has a

PLR-108640-23                                 2

December 31 tax year end. According to its operating agreement, the Taxpayer’s
purpose was to qualify as a QOF, invest generally in qualified opportunity zone
property, and acquire an interest in a particular opportunity zone property.

During Year 1, investors made cash contributions totaling Amount 1 to Taxpayer in
exchange for membership interests. No other activity occurred during Year 1.

According to the affidavits and information provided to us, Firm was engaged to handle
the tax filings for Taxpayer. Firm, despite agreeing to handle the tax filings of Taxpayer,
mistakenly believed that Taxpayer had no filing obligation for Year 1 due to Taxpayer
not having any income or loss activity for Year 1. As a result, Firm failed to file the Form
1065, U.S. Return of Partnership Income, and Form 8996 for Year 1 (due March 15,
Year 2, unless on extension).

Firm did, however, timely file Taxpayer’s Form 1065 for the Year 2 tax year (on
extension in Year 3), along with the self-certification Form 8996.

During Year 4, Firm realized that Forms 1065 and 8996 should have been filed for Year

1. Firm immediately notified Taxpayer and the two promptly worked to rectify the error.

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

                                  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) provides the rules for an entity to
self-certify as a QOF. 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 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, Qualified Opportunity Fund,
with its tax return for the year to which the certification applies. The Form 8996 must be
filed by the due date of the Federal income tax return (including extensions). The
information provided indicates that Firm did not file Taxpayer’s Form 8996 because Firm
mistakenly believed that Taxpayer had no filing obligation for Year 1.

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).

PLR-108640-23                                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; failed to make the election, because after
exercising reasonable diligence (taking into account the taxpayer’s experience and the
complexity of the return or issue), the taxpayer was unaware of the necessity for the
election; 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 § 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

PLR-108640-23                                  4

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: Taxpayer has satisfied the
requirements for the granting of relief under section 301.9100-3(b). Accordingly, based
solely on the facts and information submitted, and the representations made in the
ruling request, we grant Taxpayer an extension of 60 days from the date of this letter
ruling to file a Form 8996 to make the election to self-certify as a QOF under section
1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i). The election must be made on a
completed Form 8996 attached to the Taxpayer’s amended tax return or administrative-
adjustment request (as applicable) for Year 1. This letter ruling grants an extension of
time to file a Form 8996. This letter ruling does not grant an extension of time to file
Taxpayer’s Form 1065. 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 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 all 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.

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(s) owned by Taxpayer qualify as qualified
opportunity zone property, as defined in section 1400Z-2(d)(2), or whether such
interest(s) 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.

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.

PLR-108640-23                                           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,



                                               MARTIN L. OSBORNE
                                               Senior Counsel, Branch 8
                                               Office of Chief Counsel
                                               (Income Tax & Accounting)


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