Opportunity fund receives 45 days to file late self-certification

Plain-English summary

A partnership organized as a limited liability company intended to qualify as a qualified opportunity fund from the month it was formed. Its first tax adviser failed to tell it that it needed to file a federal return and Form 8996 for its first year, so neither filing was made. A later adviser discovered the omission while preparing the next year’s returns, and the taxpayer requested relief before the IRS discovered the failure. The IRS found reasonable reliance on a tax professional, good faith, and no prejudice to the government. It gave the taxpayer 45 days to file Form 8996 and have the self-certification treated as timely from the requested month, while expressly declining to rule that the entity or its investments otherwise satisfied the opportunity-zone rules.

Ruling snapshot

• Question: May the partnership file a late Form 8996 and self-certify as a qualified opportunity fund from its formation month?
• Outcome: Approved; Form 8996 must reach the proper service center within 45 days
• 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: 202406003                                             Third Party Communication: None
 Release Date: 2/9/2024                                        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:B04
                                                               PLR-110490-23
                                                               Date:
                                                               November 13, 2023




                                                    LEGEND

 Taxpayer         =        ---------------------------------------------------------------------------------------
                           --------------------------------
 Advisor 1        =        --------------
 Advisor 2        =        ----------------------
 Year 1           =        -------
 Year 2           =        -------
 Month 1          =        ---------------------
 Month 2          =        ----------------
 Date 1           =        --------------------------
 Date 2           =        ------------------
 State Z          =        -------------




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

        This letter responds to Taxpayer’s request dated Date 2, requesting 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) to be treated as a
QOF, effective as of Month 1, 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-110490-23                                2


                                             FACTS

       Taxpayer has represented that the facts are as follows. Taxpayer, a partnership
organized as a limited liability company under the laws of State Z, was formed on Date
1 to be a QOF for the purpose of investing in qualified opportunity zone property as
defined in section 1400Z-2(d)(2).

       According to Taxpayer, Taxpayer’s representatives engaged Advisor 1 to
prepare Year 1 Federal income tax returns for Taxpayer and the entity that directly
owns 99% of Taxpayer’s membership interests. According to the information and
affidavits provided to us, Taxpayer’s representatives informed Advisor 1 that Taxpayer
intended to qualify as a QOF beginning in Year 1, but Advisor 1 failed to advise
Taxpayer’s representatives of the obligation to file either a Federal income tax return or
a Form 8996 for Taxpayer for Year 1. Accordingly, Taxpayer did not file a Federal
income tax return or Form 8996 for Year 1.

       Taxpayer’s representatives subsequently engaged Advisor 2 to prepare
Taxpayer’s Year 2 Federal income tax returns. In the course of this engagement, in
Month 2, Advisor 2 discovered Taxpayer’s failure to file either its Year 1 Federal income
tax returns or a Form 8996 for Year 1. Advisor 2 advised Taxpayer that Taxpayer
should have filed a Federal income tax return and a Form 8996 for Year 1. As of the
date this ruling was requested, Taxpayer has not yet filed either its Federal income tax
return or the Form 8996 for Year 1.

                                     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 the Taxpayer
did not file its Form 8996 by the due date of its income tax return due to Advisor 1’s
failure to advise Taxpayer of such requirement.

Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards that 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-
PLR-110490-23                                 3

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.

                                      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, Taxpayer has
satisfied the requirements of the regulations for the granting of relief, and Taxpayer’s
Form 8996, certifying the Taxpayer as a QOF as of Month 1, will be considered timely
filed provided it is received by the appropriate service center no later than 45 days from
the date of this letter ruling.
PLR-110490-23                                  4

      The rulings contained in this letter are based upon information and
representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

       This ruling addresses the granting of Treas. Reg. § 301.9100-3 relief as applied
to the election to self-certify the Taxpayer as a QOF, as of Month 1 and the late 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 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.

       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.

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



                                                   Sincerely,


                                                   Lisa Mojiri-Azad
                                                   Senior Technician Reviewer, Branch 4
                                                   Office of Associate Chief Counsel
                                                   (Income Tax & Accounting)


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