Qualified opportunity fund receives 60 days to make late self-certification

Plain-English summary

A partnership limited liability company was formed and funded to invest in qualified opportunity zone property and serve as a qualified opportunity fund. Its accounting firm advised that a partnership return generally was unnecessary because the company had no profit-and-loss activity, and the manager did not know that the company still needed to file for that year to self-certify as a fund. A second accounting firm later identified that Form 8996 had not been timely filed. 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 attached to the company's federal income tax return, but it did not extend the deadline for Form 1065. The ruling does not decide whether the company or its investments otherwise satisfy the substantive opportunity-zone requirements.

Ruling snapshot

• Question: May the company receive extra time to file Form 8996 and self-certify as a qualified opportunity fund?
• Outcome: Approved, with 60 days to file Form 8996; no extension for Form 1065
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202442003 Third Party Communication: None
Release Date: 10/18/2024 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-101486-24
Date:
July 19, 2024

                                                 LEGEND

Taxpayer = -----------------------------------------------------
State = -----------
Accounting Firm A = -------------------------------------------
Accounting Firm B = -----------------------------
Attorneys = -----------------------------------------
Members = -------------------------------------------------------------------------------
Member A = ---------------------------
Manager = ------------
Date 1 = --------------------------
Date 2 = ---------------------------
Date 3 = --------------------------
Date 4 = ---------------------
Date 5 = ---------------------
Date 6 = ------------------
Year 1 = -------

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

This letter responds to Taxpayer’s request for a letter ruling dated Date 1.
Specifically, Taxpayer requests relief under sections 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations for an extension of time, 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 Year 1, effective as of

PLR-101486-24 2

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, 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 accrual method of
accounting.

Taxpayer engaged the services of Accounting Firm A for Year 1. Accounting Firm A had
prepared and timely filed federal income tax returns for entities managed by Manager
for years prior to Year 1. Accounting Firm A and Manager discussed filing requirements
for Taxpayer for Year 1. Accounting Firm A advised that generally a Year 1 Form 1065,
US Return on Partnership Income was not required because Taxpayer had no profit and
loss activity for the year. Manager did not know that because Taxpayer was formed and
funded in Year 1 that it would need to file for that year in order to self-certify as a QOF.
Taxpayer's Form 1065 for the year ending Date 3 was due on or before Date 4.
Taxpayer did not timely file Form 1065 or Form 7004, Application for Automatic
Extension of Time to File Certain Business Income Tax, Information and Other
Returns because it did not learn until after the fact that a Year 1 Form 1065 was
required.

On Date 5, Manager and Member A consulted Accounting Firm B to discuss Taxpayer
and its requirements. Accounting Firm B advised that because Form 8996 was not
timely filed Taxpayer did not timely self-certify as a QOF. After discovering that the
election had not been timely made, on Date 6, Manager engaged Law Firm to file a
private letter ruling seeking relief under sections 301.9100-1 and 301.9100-3. Taxpayer
then filed this ruling request seeking an extension of time to file Form 8996 for
Taxpayer’s Year 1 tax year. Taxpayer has not yet filed its Form 1065 or Form 8996 for
Year 1.

Taxpayer further represents that the tax liabilities of Taxpayer (and its investors) would
not be lower in the aggregate for Year 1 and subsequent taxable years affected by the
election than if the election had been timely made (taking into account the time value of
money).

                             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

PLR-101486-24 3

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 income tax return (including extensions) due
to belief that submission was not required for the year at issue.

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

PLR-101486-24 4

  (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. 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 federal income tax return. 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.

                                    CAVEATS

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

PLR-101486-24 5

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 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. Enclosed is a copy of the letter
ruling showing the deletions proposed to be made when it is disclosed under section
6110.

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

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,




                                          Shareen S. Pflanz
                                          Branch Chief, Branch 8
                                          Office of Associate Chief Counsel
                                          (Income Tax and Accounting)

cc: -----------------------------