Opportunity fund gets 60 days to file late self-certification

Plain-English summary

A partnership formed to be a qualified opportunity fund received capital contributions but had no income, deduction, gain, or loss in its first year. Its accountant incorrectly advised that no return was required and did not explain that the partnership still needed to file a return with Form 8996 to self-certify as a qualified opportunity fund. The error came to light after an investor received an IRS notice treating the investment as ineligible. Because the partnership reasonably relied on a qualified tax professional and relief would not prejudice the government, the IRS granted 60 days from the letter date to file Form 8996 with its tax return. The ruling addressed only the late election and did not decide whether the partnership otherwise met the qualified opportunity fund requirements or whether its investors made qualifying investments.

Ruling snapshot

• Question: May the partnership receive extra time to file Form 8996 and self-certify as a qualified opportunity fund from its formation month?
• 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: 202404001                                           Third Party Communication: None
 Release Date: 1/26/2024                                     Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                             Person To Contact:
 ----------------------                                      ---------------------, ID No. -----------------
 -----------------------------                               Telephone Number:
 ------------------------                                    --------------------
 ---------------------------                                 Refer Reply To:
                                                             CC:ITA:B04
                                                             PLR-109552-23
                                                             Date:
                                                             October 31, 2023




                                                 LEGEND

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

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

 Year 1           = -------

 Year 2           = -------

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

 State Z          = -------------

 Accountant = ------------------


Dear -------:

This letter responds to Taxpayer's request dated ----------------, seeking a private letter
ruling granting relief to make a late regulatory election pursuant to Treas. Reg. §§
301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations.
Specifically, Taxpayer requests an extension of time to file Form 8996 , Qualified
Opportunity Fund, to (1) self-certify as a qualified opportunity fund (QOF), as defined in
section 1400Z-2(d) of the Internal Revenue Code (Code) and (2) be treated as a QOF,
effective as of the month Taxpayer was formed, as provided under section 1400Z-2(d)
and Treas. Reg. § 1.1400Z2(d)-1(a).

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.
PLR-109552-23                                2

                                         FACTS

Taxpayer was organized as a limited liability company under the laws of State Z on
Date 1 and is treated as a partnership for federal income tax purposes. Taxpayer was
formed to be a QOF effective on Date 1 for the purpose of investing in qualified
opportunity zone property as defined in section 1400Z-2(d)(2). Taxpayer represents
that it had no items of income, deduction, gain, or loss in Year 1.

Taxpayer engaged the services of Firm in Year 2 to prepare the Year 1 federal income
tax return and answer questions related to federal income tax matters. According to
affidavits and information provided by Taxpayer, Taxpayer’s partnership representative
met with Accountant, a Certified Public Accountant and partner of Firm, to discuss the
filing requirements for Taxpayer. Taxpayer’s partnership representative provides that
Accountant told the representative there were no filing requirements, as Taxpayer had
no items of income, deduction, gain or loss.

Accountant represents that Accountant did not advise Taxpayer’s partnership
representative that because there were contributions received by Taxpayer in the year
of formation, Taxpayer was required to make an election to self-certify as a QOF by
filing Form 8996 with its Year 1 federal income tax return, notwithstanding that the tax
return would not reflect any items of income, deduction, gain, or loss. Taxpayer’s
partnership representative represents that Taxpayer relied on Accountant and Firm to
notify it of the requirement to file the Year 1 federal income tax return and Form 8996.

Accountant and Taxpayer became aware of the failure to file the Year 1 federal income
tax return and Form 8996 after an investor in Taxpayer received notice from the Internal
Revenue Service that the investor’s investment was considered to be an ineligible
investment.

                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for the
certification of QOFs. Treas. Reg. § 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 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
intended to self-certify as a QOF as of the month Taxpayer was formed but did not file
its Form 8996 by the due date of its income tax return.
PLR-109552-23                                 3

Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards the Service will
use to determine whether to grant an extension of time to make a regulatory election.
Treas. Reg. § 301.9100-3(a) provides that requests for extensions of time for regulatory
elections (other than automatic changes covered in Treas. Reg. § 301.9100-2) will be
granted when the taxpayer acted reasonably and in good faith and granting relief will
not prejudice the interests of the Government.

Treas. Reg. § 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 Treas. Reg. § 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 could be
       imposed under § 6662 at the time the taxpayer requests relief and the new
       position requires a regulatory election for which relief is requested;

       (ii) Was fully informed of the required election and related tax consequences, but
       chose not to file 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.

Treas. Reg. § 301.9100-3(c) provides that the Service will grant a reasonable extension
of time only when the interests of the Government will not be prejudiced by the granting
of relief. 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.
PLR-109552-23                                  4

                                       CONCLUSION

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. 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 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 is to be made on a completed Form 8996 attached
to the Taxpayer’s tax 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 information,
representations, and other data submitted.

This ruling addresses the granting of Treas. Reg. § 301.9100-3 relief as applied to
Taxpayer’s election to self-certify as a 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 Treas. Reg. §
1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements under section
1400Z-2 and the regulations thereunder to be a QOF. We express no opinion regarding
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,
Taxpayer’s election.

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,


                                       Stephen J. Toomey
                                       Senior Counsel, Branch 4
PLR-109552-23                           5

                                  Office of Associate Chief Counsel
                                  (Income Tax & Accounting)

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