Qualified opportunity fund gets 60 days to file its late self-certification

Plain-English summary

A limited liability company taxed as a partnership was formed to operate as a qualified opportunity fund and invest in qualified opportunity zone property. A firm handled tax filings for about 75 related entities, but a miscommunication meant it was not engaged to prepare this company's return or Form 8996. After the firm discovered that neither document had been filed, the company promptly requested late-election relief. The IRS found that the company acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file Form 8996 with the company's return and self-certify as a qualified opportunity fund effective on the requested date. The ruling did not extend the deadline for filing Form 1065 or decide whether the company or its investments otherwise met the opportunity-zone requirements.

Ruling snapshot

• Question: May the company file a late Form 8996 to self-certify as a qualified opportunity fund?
• Outcome: Approved, with 60 days to file Form 8996 with its return
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a), 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202420015 Third Party Communication: None
Release Date: 5/17/2024 Date of Communication: Not Applicable
Index Number: 1400Z.01-00, 9100.00-00
Person To Contact:
-------------------------------- ----------------------, ID No. --------------------
-------------------------------------- ---------------------------------------------------
---------------------------- Telephone Number:
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Refer Reply To:
CC:ITA:B05
PLR-116599-23
Date:
February 16, 2024

Taxpayer = ---------------------------------------------------------
Submission Date = ----------------------
Date 1 = ----------------------
State Z = -------------
Year 1 = -------
Members = ------------------------------------
= --------------------
= --------------------------------
Firm = ------------------------
Date 2 = --------------------

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

This ruling 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

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 with contributions from its Members.

Taxpayer’s overall method of accounting is the accrual method, and Taxpayer has a
December 31 tax year end. Taxpayer was formed to be a QOF as defined in section
PLR-116599-23 2

1400Z-2(d) and to acquire, own, develop, redevelop, operate, and manage investments
that are qualified opportunity zone property within the meaning of section 1400Z-2(d)(2).

According to the affidavit and information provided to us, Firm was engaged to handle
the tax filings for approximately 75 entities controlled by Taxpayer’s members and
affiliates for Year 1.

Due to a miscommunication between Firm and Taxpayer, Firm was inadvertently not
engaged to prepare Taxpayer’s Federal income tax return and Form 8996 for Year 1.
As a result, neither Taxpayer’s Federal income tax return nor Form 8996 for Year 1
were filed before the due date for its Year 1 return.

On Date 2, Firm discovered that Taxpayer’s Year 1 income tax returns had not been
filed. After this discovery, Taxpayer and Firm moved expeditiously to seek this letter
ruling requesting relief under section 301.9100-3. Taxpayer has not filed its required
Year 1 tax forms, including Form 8996, and has requested additional time to file 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) provides the rules for an entity to
self-certify as a QOF. Section 1.1400Z2(d)-1(a)(2)(i) provides that the entity electing to
be certified as a QOF must do so on a timely filed return 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 tax return (including extensions). The information provided
indicates that Firm did not file Taxpayer’s Form 8996 for Year 1 due to a
miscommunication between Firm and Taxpayer.

Because section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to
self-certify as a QOF, these elections are regulatory elections, as defined in section
301.9100-1(b).

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.
PLR-116599-23 3

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, 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 section 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.

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
PLR-116599-23 4

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 tax return 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.

This ruling is based upon facts and representations submitted on behalf of the Taxpayer
accompanied by a penalty of perjury statement executed by its chief financial officer.
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.

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 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.

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

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,


                                   Amy J. Pfalzgraf
                                   Branch Chief, Branch 5
                                   Office of Associate Chief Counsel
                                   (Income Tax & Accounting)

PLR-116599-23 5

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