Late qualified opportunity fund self-certification is treated as timely

Plain-English summary

A partnership limited liability company was formed to invest in qualified opportunity zones and operate as a qualified opportunity fund. One manager believed a liaison would engage an accounting firm to prepare the company's tax return and the Form 8996 needed to self-certify as a fund. The manager later learned that no accounting firm had been engaged and immediately hired one, which filed Form 1065 with Form 8996 attached. The IRS had not discovered the missed deadline before the company requested relief. The IRS found that the company acted reasonably and in good faith and that relief would not prejudice the government. It treated the Form 8996 as timely filed and the QOF election as effective on the requested date, without ruling that the company or its investments otherwise met the substantive opportunity-zone requirements.

Ruling snapshot

• Question: May the company make a late election to self-certify as a qualified opportunity fund?
• Outcome: Approved
• 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: 202443014 Third Party Communication: None
Release Date: 10/25/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
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ID No. -----------------
----------------------------------- Telephone Number:
---------------------------------------- --------------------
---------------------------- Refer Reply To:
------------------------------------------------ CC:ITA:B05
PLR-105855-24
Date:
July 25, 2024

Legend:
Taxpayer = -------------------------------------------------------------
Date 1 = -------------------
Date 2 = --------------
Date 3 = ------------------
Date 4 = ----------------------
Date 5 = -----------------------
State = -------------
Management = ---------------------------------------------------------------------
Committee -----------------------------
Individual A = ---------------------
Individual B = --------------------
Accountant = ------------------------
Year 1 = -------
Accounting Firm = -----------------------
N1 = ---
N2 =

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

This responds to Taxpayer’s request dated Date 1, for relief under §§ 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations to file Form 8996,
Qualified Opportunity Fund. Specifically, Taxpayer requests that the Internal Revenue
Service (Service) grant an extension of time to make an election under section 1400Z-2
of the Internal Revenue Code and § 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations
to self-certify as a qualified opportunity fund (QOF), effective as of Date 2.

PLR-105855-24 2

                                     FACTS

Taxpayer is a limited liability company organized under the laws of State on Date 3.
Taxpayer uses the calendar year as its taxable year and uses the accrual method of
accounting. For purposes of federal income taxation, Taxpayer is treated as a
partnership. Taxpayer is owned by Individual A, who holds a N1% interest and
Individual B, who holds a N2% interest.

Taxpayer was formed for the purpose of making investments in Qualified Opportunity
Zones and operating as a QOF as defined in § 1.1400Z2(d)(1) of the Income Tax
Regulations. Pursuant to the operating agreement, entered into by Individual A and
Individual B on Date 2, Taxpayer is managed by Management Committee. Individual A,
one of Taxpayer’s managers, requested this ruling on behalf of Taxpayer.

Taxpayer’s submission and request for a ruling includes an affidavit and supplemental
affidavit from Individual A. Individual A indicates that when forming Taxpayer, he was
unaware of the specific filing requirements in order to qualify Taxpayer as a qualified
opportunity fund as of a specific date in Year 1.

Individual A believed that a person, whom Individual A refers to as a “liaison”, would
arrange for the completion of all tax compliance obligations for Taxpayer, including filing
the required returns and forms to qualify Taxpayer as a QOF. According to Individual A,
the liaison was previously involved in creating the structure and organization of
Taxpayer and possessed experience with similar investments and relationships with
professional service firms. Individual A mistakenly thought that the liaison had engaged
Accounting Firm to handle the preparation and filing of any required returns and related
forms for Taxpayer to qualify as a QOF. Individual A alleges that it was therefore
reasonable for him to rely upon liaison to ensure the required forms would be prepared
and timely filed with the Service.

Individual A’s supplemental affidavit indicates that on Date 4, he learned that liaison did
not inform Accounting Firm that Taxpayer expected Accounting Firm to prepare and file
Taxpayer’s income tax return for Year 1 and the form(s) necessary for Taxpayer to be
classified as a QOF. Upon learning of the failure of the liaison to engage an accounting
firm, Individual A immediately hired Accounting Firm to prepare the required forms in
order to qualify Taxpayer as a QOF.

The submission includes an affidavit from Accountant, a partner at Accounting Firm,
who indicated that before Date 4, Accounting Firm had no reason to believe it was
responsible for preparing or filing Taxpayer’s federal or state income tax returns for
Year 1. The affidavit further states that Accounting Firm filed with the Service a
Treasury Form 1065, U.S. Partnership Return of Income, with Form 8996 attached on
Date 5.

PLR-105855-24 3

Taxpayer indicates that as of the date it submitted its private letter ruling request to this
office, the Service had not discovered Taxpayer’s failure to timely self-certify itself as a
QOF, effective Date 2.

                              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) 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 an 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).

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)
of the Procedure and Administration Regulations.

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 makes a request for an extension of time before the Service
discovers the taxpayer’s failure to make the regulatory election, or failed to make the
election because, after exercising reasonable diligence (taking into account the
taxpayer’s experience and the complexity of the return or issue), the taxpayer was
unaware of the necessity for the election. A taxpayer may alternatively demonstrate
that he acted reasonably and in good faith if he relied upon a qualified tax professional
and the tax professional failed to make, or advise the taxpayer to make, the election.

Under § 301.9100-3(b)(3), 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,

PLR-105855-24 4

   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 § 301.9100-3.

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 will not prejudice the interests of the government. Taxpayer’s manager, Individual
A, was unaware of the specific filing requirements in order to qualify Taxpayer as a
QOF. Consequently, the Form 8996 attached to the Form 1065 that Taxpayer filed on
Date 5 is considered timely filed. Taxpayer has thereby made the election under
section 1400Z-2 and § 1.1400Z2(d)-1(a)(2) to self-certify as a QOF effective as of Date

2. Taxpayer should submit a copy of this letter ruling to the Service Center where
   Taxpayer files its returns along with a cover letter and request that the Service
   associate this ruling with the Form 1065 filed for Year 1.

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 section
1400Z-2 and the regulations thereunder to be a QOF. We express no opinion on
whether any interest in any entity owned 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).

PLR-105855-24 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 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.

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 Taxpayer's authorized representative.

                                          Sincerely,



                                          Gerald Semasek
                                          Assistant to the Branch Chief, Branch 5
                                          Office of Associate Chief Counsel
                                          (Income Tax and Accounting)

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