Opportunity fund received 60 days to file a late self-certification

Plain-English summary

A partnership was formed to qualify as a qualified opportunity fund and invest indirectly in opportunity-zone property. Its planned business acquisition was delayed into the following year, and its law and accounting firms did not advise it to file a partnership return or Form 8996 for its first year. The advisers mistakenly believed there was no filing obligation because the partnership had no income, loss, or completed investment that year. The omission was discovered during later tax-planning discussions, before the IRS found it. The IRS granted 60 days to file Form 8996 with an amended return or administrative adjustment request, but did not rule that the fund or its investments otherwise met the opportunity-zone requirements.

Ruling snapshot

• Question: Could the partnership receive extra time to self-certify as a qualified opportunity fund for its first year?
• Outcome: approved, with a 60-day extension
• 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: 202419013                                      Third Party Communication: None
 Release Date: 5/10/2024                                Date of Communication: Not Applicable
 Index Number: 9100.00-00, 1400Z.01-00,
               1400Z.02-00                              Person To Contact:
                                                        ---------------------, ID No. -----------------
 --------------------                                   Telephone Number:
 -------------------------------------                  --------------------
 ----------------------------                           Refer Reply To:
 ---------------------------------                      CC:ITA:B04
                                                        PLR-116506-23
                                                        Date:
 In Re:                                                 February 09, 2024
          --------------------------------------
          --------------------------




                                                   LEGEND


 Taxpayer        = -------------------------------
                   -------------------------------
 State Z         = ------------
 Individual      = ---------------
 Tax Year        = ------------------
 City            = ---------------------
 Law Firm        = -------------------------------
                   --------------
 Accounting Firm = -------------------------------
                   ----------------------
 Year 1          = -------
 Year 2          = -------
 Year 3          = -------
 Date 1          = ------------------
 Date 2          = ---------------------
 Date 3          = ---------------------
 Date 4          = -------------------



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

This letter responds to Taxpayer’s request, dated Date 4. Specifically, Taxpayer
requests an extension of time, under §§ 301.9100-1 and 301.9100-3 of the Procedure

PLR-116506-23                                        2

and Administration Regulations, to file Taxpayer’s Form 8996, Qualified Opportunity
Fund, for purposes of making the election, under § 1.1400Z2(d)-1(a)(2)(i) of the Income
Tax Regulations, to: (1) self-certify Taxpayer as a qualified opportunity fund (“QOF”), as
defined in § 1400Z-2(d) of the Internal Revenue Code; and (2) be treated as a QOF,
effective as of the month Taxpayer was formed, as provided under § 1400Z-2(d) and §
1.1400Z(d)-1(a).1

                                                 FACTS

Based on the provided information and representations, Taxpayer was organized, on
Date 1, as a limited liability company, under the laws of State Z and is classified as a
partnership for federal income tax purposes. As stated in Taxpayer’s operating
agreement, Taxpayer was organized for the purpose of qualifying as a QOF and
investing indirectly in qualified opportunity zone property as defined in § 1400Z-2(d)(2).
Taxpayer represents that it is eligible to make an election to be recognized as a QOF for
Year 1. Taxpayer uses the cash method of accounting and has a taxable year end of
Tax Year.

Individual, as managing member of Taxpayer, was responsible for ensuring Taxpayer’s
federal tax returns were prepared and filed on a timely basis. Individual has significant
experience in tax and accounting matters but did not have extensive knowledge of the
federal tax laws relating to QOF qualification requirements. Individual, on Taxpayer’s
behalf, engaged Law Firm to assist with qualified opportunity zone matters.

In Year 1, Taxpayer entered negotiations to purchase a business located in City. The
purchase of the business was scheduled to close within Year 1 but was significantly
delayed due to circumstances outside the control of Taxpayer. The transaction was
ultimately consummated in the beginning of Year 2.

While in negotiations to purchase the business, Taxpayer sought advice from Law Firm
on how to structure the transaction to meet the requirements of a QOF. Taxpayer also
relied on Accounting Firm to complete Taxpayer’s federal income tax returns. Neither
Law Firm nor Accounting Firm, advised Taxpayer of the need to file the Form 1065 U.S.
Return of Partnership Income, or Form 8996 Qualified Opportunity Fund, for Year 1.
Accounting Firm mistakenly believed that Taxpayer had no filing obligation for Year 1
due to Taxpayer not investing the funds during Year 1 and not having any income or
loss activity for Year 1. As a result, Taxpayer did not file a Form 1065, thus did not
timely file a Form 8996, for Year 1.

On Date 2, in the beginning of Year 3, Taxpayer held a conference call with Law Firm
and Accounting Firm to discuss ongoing tax planning and tax compliance regarding
Taxpayer’s QOF status. Law Firm requested information relating to Taxpayer’s Year 1


1
 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code
or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301) as applicable.

PLR-116506-23                                 3

tax return. During this call it was discovered that Taxpayer did not timely file their Year
1 Forms 1065 and 8996.

On Date 3, Law Firm held a call with Taxpayer and Accounting Firm to confirm no Year
1 tax return was filed by Taxpayer and discuss options available to Taxpayer. Law Firm
advised Taxpayer to file this request for an extension of time, under § 301.9100-3, to file
the Form 8996 for Year 1.

                                  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)(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 did
not timely file the Form 8996 by the due date of its Year 1 federal income tax return due
to not being informed of the requirement to file the Form 8996 for Year 1 or the federal
tax laws applicable to Taxpayer and of the self-certification requirements for QOFs.

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 § 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.

Section 301.9100-1(b) defines the term “regulatory election” as including any election
whose due date is prescribed by a regulation published in the Federal Register. 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 § 301.9100-1(b).

Section 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;

PLR-116506-23                                4

      (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 § 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 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 a 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 § 6501(a) before the taxpayer's receipt of a
ruling granting relief under this section.

Taxpayer represents that it requested relief before the failure to make the regulatory
election was discovered by the Service. Taxpayer also represents that none of the
circumstances listed in § 301.9100-3(b)(3) apply.

PLR-116506-23                                  5

                                       CONCLUSION

Based solely on the facts and information submitted and the representations made in
this ruling request, we conclude that that Taxpayer has acted reasonably and in good
faith, and that the granting of relief would not prejudice the interests of the Government.
Accordingly, 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 § 1400Z-2
and § 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 to an administrative-adjustment
request (as applicable).

                                         CAVEATS

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by the 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.

This ruling addresses the granting of § 301.9100-3 relief as applied to the election to
self-certify Taxpayer as an QOF by filing Form 8996 for Year 1. Specifically, we have
no opinion, either express nor implied, concerning whether any investments made into
Taxpayer are qualifying investments as defined in § 1.1400Z-2(a)-1(b)(34), or whether
Taxpayer met or meets the requirements under § 1400Z-2 and the regulations
thereunder to be a QOF. Further, we express no opinion on whether any interest
indirectly owned by Taxpayer qualifies as qualified opportunity zone property, as
defined in § 1400Z-2(d)(2), or whether the indirect interest would be treated as a
qualified opportunity zone business, as defined in § 1400Z-2(d)(3). Nor do we express
any opinion regarding the tax treatment of the instant transaction under the provisions of
any other sections of the Internal Revenue Code or Treasury 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) 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 Form 2848, Power of Attorney and Declaration of
Representative, on file with this office, a copy of this letter is being sent to Taxpayer’s
authorized representatives.

PLR-116506-23                                6

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.


                                                 Sincerely,




                                                 Mon L. Lam
                                                 Senior Counsel, Branch 4
                                                 Office of Associate Chief Counsel
                                                 (Income Tax & Accounting)



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