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

Plain-English summary

A partnership formed to invest in qualified opportunity zone property intended to operate as a qualified opportunity fund. Its accounting firm did not know of that intent and omitted Form 8996 from the partnership return. After another CPA discovered the omission, the partnership requested late-election relief. The IRS found reasonable reliance and no prejudice to the government, granting 60 days to attach Form 8996 to an amended return or administrative adjustment request, without deciding whether the partnership otherwise qualified as a 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: 202424013                                         Third Party Communication: None
Release Date: 6/14/2024                                   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:B08
                                                          PLR-119322-23
                                                          Date:
                                                          March 19, 2024



                                              LEGEND

                     Taxpayer            = -----------------------------------------------------
                     State               = -------------
                     Accounting          = -------------------------------
                     Firm
                     Members             = ----------------------------------------------------------------
                                           ----------------------
                     Member              = -----------------------------
                     Manager
                     CPA                 =   ---------------------------
                     Date 1              =   ---------------------------
                     Date 2              =   ---------------------
                     Date 3              =   --------------------------
                     Year 1              =   ------



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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of
the Procedure and Administration Regulations, to (1) make a timely election under
section 1.1400Z2(d)-1(a)(2)(i) to be certified as a qualified opportunity fund (QOF), as
defined in section 1400Z-2(d) of the Internal Revenue Code, and (2) for Taxpayer to be
treated as a QOF, effective for its taxable year ended Date 3, effective as of Date 2, as
provided by section 1400Z-2(d) and section 1.1400Z2(d)-1(a).

PLR-119322-23                                2

                                         FACTS

According to the affidavits and additional information provided to us, Taxpayer has
represented that the facts are as follows:

Taxpayer is a limited liability company organized under the laws of State. Taxpayer is
classified as a partnership for U.S. Federal income tax purposes and was formed for the
purpose of investing in qualified opportunity zone property and serving as a QOF, and
uses an accrual method of accounting.

Member Manager in concert with the other member of Taxpayer engaged Accounting
Firm to prepare the Year 1 Form 1065, US Return on Partnership Income. The
Taxpayer intended to be treated as a QOF, and mistakenly believed that Accounting
Firm understood its intent. The Taxpayer was generally aware that an election was
needed to be qualified as a QOF and believed it had communicated that Accounting
Firm should prepare the election. Inadvertently, Accounting Firm was unaware that
Taxpayer intended to be certified as a QOF for Year 1. Therefore, Accounting Firm did
not prepare Form 8996, Qualified Opportunity Fund, as part of the Taxpayer’s Year 1
initial tax return. Taxpayer did not recognize that omission during its review of the
return.

Member Manager provided information to CPA for Member Manager’s own individual
income tax return. As part of CPA’s review of the Year 1 information for Member
Manager, CPA discovered the omission regarding certification of Taxpayer to be a
QOF. Member Manager then discussed with Accounting Firm and discovered that Form
8996 should have been filed with Year 1 Form 1065. Consequently, the election to self-
certify as a QOF on the Form 8996 was not timely made. Taxpayer then filed this ruling
request seeking extension of time to file Form 8996 for Taxpayer’s year ending Date 3,
pursuant to sections 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations. Taxpayer has not yet filed Form 8996 for Year 1.

Taxpayer represents that granting of the relief under section 301.9100-3 will not result in
a lower tax liability for the years affected by the election.

                                          LAW

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 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.

PLR-119322-23                                 3

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).

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.

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.

PLR-119322-23                                 4

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.

                                     CONCLUSION

The information provided indicates that Taxpayer did not file its Form 8996 by the due
date of its Federal income tax return (including extensions) due to administrative
oversight by Accounting Firm. Based on the facts and information provided 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).

                                        CAVEATS

The granting of an extension of time in this ruling letter is not a determination that
Taxpayer is otherwise eligible to self-certify as a QOF. See Section 301.9100-1(a).

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
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 by Taxpayer qualifies as qualified opportunity
zone property, as defined in section 1400Z(d)(2), or whether such interest would be
treated as a qualified opportunity zone business, as defined in section 1400Z-2(d)(3).

PLR-119322-23                                  5

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 representative.


                                          Sincerely,




                                          Martin L. Osborne
                                          Senior Counsel, Branch 8
                                          Office of Associate Chief Counsel
                                          (Income Tax and Accounting)



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