Late opportunity fund certification allowed

Plain-English summary

A partnership was formed to invest in qualified opportunity zone property and operate as a qualified opportunity fund. Its accounting firm timely filed the first partnership return but omitted Form 8996, which was required to self-certify the entity as a fund beginning in its formation month. The taxpayer represented that it had relied on competent tax professionals and that granting relief would not reduce its tax liability for the affected years. The IRS granted 60 days to attach a completed Form 8996 to an amended return or administrative adjustment request. The ruling allows the late election but does not determine whether the taxpayer, its investments, or the underlying property otherwise satisfy the opportunity-zone rules.

Ruling snapshot

• Question: May the partnership make a late election to self-certify as a qualified opportunity fund?
• Outcome: Approved, with 60 days to file Form 8996
• 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: 202435003 Third Party Communication: None
Release Date: 8/30/2024 Date of Communication: Not Applicable
Index Number: 1400Z.02-00, 9100.00-00
Person To Contact:
-----------------------, ID No. -----------------
------------------------- Telephone Number:
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------------------------------------ Refer Reply To:
------------- CC:ITA:B08
--------------------------------- PLR-101126-24
Date:
June 03, 2024

                                        LEGEND

                  Taxpayer          =   --------------------------------------------------
                  State             =   -------------------
                  Law Firm          =   -------------------------------
                  Accounting Firm   =   -------------------
                  Date 1            =   -----------------------
                  Date 2            =   ---------------------
                  Date 3            =   --------------------------
                  Date 4            =   --------------
                  Date 5            =   --------------------
                  Date 6            =   ----------------
                  Date 7            =   --------------------------
                  Year 1            =   -------
                  Year 2            =   -------

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 Income Tax 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,
PLR-101126-24 2

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) of the Income Tax Regulations.

                                     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. Taxpayer’s annual accounting period
is the calendar year and uses the cash method of accounting. Year 1 is the first year of
Taxpayer’s operation and filing obligation.

Taxpayer had hired Law Firm to assist with the formation and organization of Taxpayer
as a QOF. Law Firm provides income tax accounting and tax preparation services to
clients through Accounting Firm. Accordingly, around Date 4, Law Firm provided
information to Accounting Firm so that it could draft Taxpayer’s return. This information
included Taxpayer’s intent to qualify as a QOF and invest in qualified opportunity zone
businesses (QOZBs) and the QOZBs’ purchase of qualified opportunity zone business
property. Taxpayer has provisions in its operating agreement that state that its purpose
is to be a QOF and to invest in “qualified opportunity zone property” as defined in
section 1400Z-2(d)(1).

Taxpayer knew Accounting Firm to be competent and sophisticated in handling Federal
income tax matters, as the firm has provided tax preparation services to Taxpayer’s
manager both individually and for his related business entities since Date 5. Taxpayer
understood that Accounting Firm would prepare and file tax returns for Taxpayer as part
of ongoing tax and accounting services, including the preparation and filing of its initial
partnership tax return and tax-related documentation to qualify as a QOF.

Taxpayer relied solely and completely on the professional advice of Accounting Firm to
prepare and file its return with all necessary information and attachments. On Date 6,
Accounting Firm timely prepared and filed Taxpayer’s Year 1 return, including Form
1065, without including Form 8996 because Accounting Firm was unaware that this was
a required component of the return at the time.

During Year 2, Accounting Firm discovered that Form 8996 should have been included
with Taxpayer’s Form 1065 for Year 1 so that Taxpayer could qualify as a QOF for the
month of its formation. Accounting Firm subsequently informed Taxpayer on Date 7 that
Form 8996 was not timely filed with its Form 1065 for Year 1 to self-certify Taxpayer as
a QOF as of the month of its formation. After Taxpayer became aware of the
consequences of failing to timely file the Form 8996, Taxpayer engaged the services of
Law Firm to submit a request for relief pursuant to 301.9100-1 and 301.9100-3.
PLR-101126-24 3

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 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, 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 federal income tax return (including
extensions) due to an error on the part of Accounting Firm.

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—
PLR-101126-24 4

   (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.

                                  CONCLUSION

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 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
PLR-101126-24 5

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).
We also express no opinion on whether any property owned by the qualified opportunity
zone businesses is qualified opportunity zone business property. 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 Powers 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,




                                                Erika C. Reigle
                                                Senior Technician Reviewer, Branch 8
                                                Office of Associate Chief Counsel
                                                (Income Tax and Accounting)

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