Qualified opportunity fund received 60 days for late self-certification

Plain-English summary

A partnership formed to invest in qualified opportunity zone property intended to elect qualified opportunity fund status from its formation date. Its accountant knew Form 8996 had to accompany the initial return but missed both the return and extension deadlines because of an administrative error. The taxpayer represented that relief would not lower its tax liability for the affected year. The IRS found reasonable reliance, good faith, and no prejudice to the government. It granted 60 days from the ruling date to file Form 8996 with an amended return or administrative adjustment request, while expressing no view on whether the fund or its investments otherwise satisfy the opportunity-zone rules.

Ruling snapshot

• Question: May the partnership receive extra time to file Form 8996 and self-certify as a qualified opportunity fund from its intended effective date?
• Outcome: approved for 60 days from the ruling date
• 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: 202417011                                    Third Party Communication: None
 Release Date: 4/26/2024                              Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                      Person To Contact:
                                                      ----------------, ID No. -----------------
                                                      Telephone Number:
                                                      --------------------
 --------------------------------------------------   Refer Reply To:
 --------------------------------------               CC:ITA:B08
 ----------------------                               PLR-115988-23
 ----------------------------------                   Date:
                                                      January 31, 2024




Legend

Taxpayer         = --------------------------------
Date 1           = ------------------
Date 2           = -------------------
Date 3           = ------------------
Date 4           = ---------------------
Member A         = ------------------------
Member B         = -------------------------
Accountant       = --------------------
State            = --------
X Percent        = ------
Y Percent        = ------
Year 1           = -------
Year 2           = -------

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

This letter responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests relief under sections 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations, for an extension of time 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 (Code) and (2) for Taxpayer to be treated as a QOF, effective as of Date
2, as provided by section 1400Z-2(d) and section 1.1400Z2(d)-1(a).
PLR-115988-23                                 2

                                          FACTS

Taxpayer is a limited liability company, organized under the laws of State on Date 2.
Taxpayer is treated as a partnership for Federal income tax purposes and was formed
for the purpose of investing in qualified opportunity zone properties in State. Taxpayer
uses the cash method of accounting and has a tax year end date of Date 3.

Taxpayer represents that it has two members: Member A, who owns X Percent, and
Member B, who owns Y Percent. Taxpayer represents that it intended to elect to be a
QOF beginning on Date 2.

According to the information and representations provided, Member A engaged
Accountant during Year 1 for the purposes of preparing and filing Taxpayer’s
Federal income tax return, and all related forms and elections, including the filing of
Taxpayer’s Form 8996, Qualified Opportunity Fund, for the Taxpayer to self-certify its
QOF status and to be treated as a QOF. Taxpayer provided Accountant with all the
necessary information to file the Form 8996.

Although Accountant was aware that the Form 8996 needed to be attached to
Taxpayer’s timely filed initial tax return, Accountant failed to timely file such return and
failed to file an extension by the return due date of Date 4. Accountant represents that it
failed to request an automatic extension to file Taxpayer’s Year 2 return due to an
administrative error.

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) of the Internal Revenue Code directs the Secretary to prescribe
regulations to carry out the purposes of section 1400Z-2, including 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. 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. The Form 8996
Instructions published pursuant to these regulations specify that to self-certify as a
QOF, a taxpayer must file Form 8996 with its tax return for the year to which the
certification applies by the due date of the tax return (including extensions).

Section 301.9100-3(a) of the Procedure and Administration Regulations provides that
requests for extensions of time for regulatory elections (other than automatic extensions
PLR-115988-23                                 3

covered in section 301.9100-2) will be granted when the taxpayer provides evidence to
establish that the taxpayer acted reasonably and in good faith, and that the granting 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 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.
PLR-115988-23                                  4

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 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).

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 owned in any entity by Taxpayer qualifies as
qualified opportunity zone property, as defined in section 1400Z-2(d)(2), or whether
such entity 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. Enclosed is a copy of the letter
ruling showing the deletions proposed to be made when it is disclosed under § 6110.

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-115988-23                                 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,


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




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