Partnership received more time to self-certify as an opportunity fund

Plain-English summary

A partnership formed to invest in a qualified opportunity zone business intended to operate as a qualified opportunity fund. Its accounting firm filed an extension and the members' individual forms but, because of a miscommunication, did not file the partnership's Form 1065 or Form 8996. The IRS found that the partnership acted reasonably and in good faith and granted 60 days to attach Form 8996 to its return for the affected year. The ruling did not extend the deadline for the partnership return itself or decide whether the partnership otherwise qualified as an opportunity fund.

Ruling snapshot

• Question: Could the partnership receive more time to file Form 8996 and self-certify as a qualified opportunity fund?
• 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: 202424012                                             Third Party Communication: None
Release Date: 6/14/2024                                       Date of Communication: Not Applicable
Index Number: 9100.00-00, 1400Z.02-00
                                                              Person To Contact:
-----------------------------------------------------         --------------------------, ID No. ----------------
--------------------------------------------------------      -----------------
--------------------------------                              Telephone Number:
-------------------------------------                         --------------------
                                                              Refer Reply To:
                                                              CC:ITA:B05
                                                              PLR-119310-23
                                                              Date:
                                                              March 12, 2024



Legend:
Taxpayer                    = -----------------------------------------------------------------
                              -----------------
Date 1                      = --------------------------
Date 2                      = ---------------------
Date 3                      = -------------------
State                       = --------------
Accounting Firm             = ---------------------------------
Accounting Firm 2           = --------------------------
Year 1                      = -------
Year 2                      = -------
Members                     = ------------------------------------------------------
Accountant                  = ------------------


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

This ruling responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations, granting an extension of time to make a timely election
under § 1.1400Z-2(a)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a
Qualified Opportunity Fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue
Code (Code).

PLR-119310-23                                2

                                        FACTS

Taxpayer represents the facts as follows:

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. Taxpayer uses
the cash method of accounting and the calendar year as its taxable year.

Taxpayer was formed for the purpose of investing in a qualified opportunity zone
business and operating as a QOF as defined in § 1400Z-2(d)(1) on Date 2.

On Date 3, Taxpayer engaged Accounting Firm to prepare its Year 1 income tax returns
and related forms. The Accounting Firm filed the Members’ Form 1040, U.S. Individual
Income Tax Return and Form 8997, Initial and Annual Statement of Qualified
Opportunity Fund Investments. The Accounting Firm also filed Form 7004, Application
for Automatic Extension of Time to File Certain Business Income Tax, Information and
Other Returns, on behalf of the Taxpayer.

However, due to a miscommunication, Accounting Firm did not file the Taxpayer’s Form
1065, U.S. Return of Partnership Income, and Form 8996, Qualified Opportunity Fund,
failing to certify the Taxpayer as a QOF for the Year 1 tax year.

In Year 2, upon later review of the Year 1 tax filings, Accountant discovered that
Accounting Firm had not completed and filed Taxpayer’s Year 1 partnership return or
Form 8996. Once it became clear that the return had not been filed, Taxpayer retained
Accounting Firm 2 and began preparing the documents to submit a private letter ruling
request.

                                 LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to
prescribe regulations for 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 entity electing to be certified as a QOF
must do so annually 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 Taxpayer did not file its Form 8996 by the due date of its income tax
return due to the Accounting Firm’s failure to timely file Taxpayer’s Year 1 return.

PLR-119310-23                                 3

Because § 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 § 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 § 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.

Under § 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, § 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).

PLR-119310-23                                 4

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.

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 for Year 1 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 tax return for Year 1. This letter ruling grants an extension
of time to file a Form 8996 for Year 1. This letter ruling does not grant an extension of
time to file Taxpayer’s Form 1065 for Year 1.

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 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
§ 1.1400Z2 (a)–1(b)(34) or whether Taxpayer meets the requirements under § 1400Z-
2 and the regulations thereunder to be a QOF.

Further, we express no opinion on whether any interest owned in any entity by
Taxpayer qualifies as qualified opportunity zone property, as defined in § 1400Z-2(d)(2),
or whether such entity would be treated as a qualified opportunity zone business, as
defined in § 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.

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.

PLR-119310-23                                      5

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


                                                      Sincerely,



                                                      Christina M. Glendening
                                                      Senior Counsel, Branch 5
                                                      Office of Associate Chief Counsel
                                                      (Income Tax & Accounting)


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