Fund receives 60 days to make a late QOF self-certification

Plain-English summary

A partnership was formed to invest in qualified opportunity zone property and intended to operate as a qualified opportunity fund. Its accountant lacked QOF experience and, amid COVID-related restrictions, miscommunications, and inadvertence, filed the partnership return late without Form 8996. The partnership discovered the omission after changing tax advisers and requested relief. The IRS found that it acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file Form 8996 with an amended return or administrative adjustment request, but did not decide whether the partnership or its investments otherwise met the QOF rules.

Ruling snapshot

• Question: May the partnership file a late Form 8996 to self-certify as a qualified opportunity fund from its formation month?
• Outcome: Approved, with 60 days from the ruling date to make the election
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202447006
Third Party Communication: None
Release Date: 11/22/2024
Date of Communication: Not Applicable
Index Number: 9100.00-00, 1400Z.02-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:ITA:B04
PLR-103431-24
Date:
August 20, 2024

Re: -------------------------------------
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Taxpayer = -------------------------------------
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State = ----------

Members = --------------------
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Manager = --------------------

Accounting Firm = -----------------------------

Accountant = ----------------------

Firm = ---------------------------

Date 1 = ---------------------

Date 2 = ---------------------

Date 3 = --------------------------

Year 1 = -------
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Dear --------------:

This letter responds to Taxpayer’s request, dated Date 3. Pursuant to §§ 301.9100-1 and 301.9100-3,1 Taxpayer requests an extension of time to make a regulatory election to (1) self-certify Taxpayer as a Qualified Opportunity Fund (QOF) as defined in
§ 1400Z-2(d) of the Code; and (2) treat Taxpayer as a QOF, effective as of the month Taxpayer was formed, as provided under § 1400Z-2 and § 1.1400Z2(d)-1(a).

FACTS

According to the facts and representations provided, Taxpayer was organized as a limited liability company on Date 1 under the laws of State and is treated as a partnership for Federal income tax purposes. Taxpayer has a calendar tax year and uses the cash method of accounting. Taxpayer was formed for the purpose of investing in qualified opportunity zone property and has two members, Members.

Taxpayer engaged Accounting Firm, a public accounting firm, to file Taxpayer’s initial Form 1065, U.S. Return of Partnership Income, for Year 1. Manager, who is a member of Taxpayer and described on Taxpayer’s operating agreement as its manager, sat in on meetings with Accountant and believed that Accountant would make all required tax elections. Later, during Date 2, Taxpayer changed tax advisors, and Manager became aware that Taxpayer’s tax return for Year 1 was filed late and did not include a Form 8996, Qualified Opportunity Fund.

Accountant is a certified public accountant who provided Taxpayer with professional tax services on behalf of Accounting Firm. Accountant did not have prior experience forming a QOF. Due to Accountant’s inexperience with QOFs, COVID-related restrictions, miscommunications, and general inadvertence, the Form 1065 for Year 1 was filed late and a Form 8996 was not included with Taxpayer’s return for Year 1. Upon discovering the error, Taxpayer engaged Firm to prepare this request.

LAW AND ANALYSIS

Section 1.1400Z2(d)-1(a)(2)(i) provides that the self-certification of a QOF must be timely-filed and effectuated annually in such form and manner as may be prescribed by the Commissioner of Internal Revenue (Commissioner) in the forms or instructions, or in publications or guidance of the Internal Revenue Service (Service) 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 Accountant

1 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code

of 1986, as amended, Title 26 U.S.C.; the Income Tax Regulations, Title 26 C.F.R. pt. 1, or the Procedure and Administration Regulations, Title 26 C.F.R. pt. 301.
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failed to timely file Taxpayer’s Form 1065 for Year 1 and did not include Taxpayer’s Form 8996 for Year 1 with the late-filed return due to a combination of inexperience, COVID-related restrictions, miscommunications, and inadvertence.

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 changes 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 granting relief will not prejudice the interests of the Government.

Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer—

(i) requests relief before the failure to make the regulatory election is discovered by the Service;

(ii) failed to make the election because of intervening events beyond the taxpayer's control;

(iii) failed to make the election because, after exercising reasonable diligence, the taxpayer was unaware of the necessity for the election;

(iv) reasonably relied on the written advice of the Service; or

(v) reasonably relied on a qualified tax professional, and the professional failed to make, or advise the taxpayer to make, the election.

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 § 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.
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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) provides the standards the Commissioner will use to determine when the interests of the Government are prejudiced.

Section 30.9100-3(c)(1) provides—

(i) 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).

(ii) 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.

CONCLUSION

Based on the 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, we grant Taxpayer an extension of 60 days from the date of this letter to file a Form 8996 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 Taxpayer’s amended tax return or to an administrative-adjustment request (as applicable).

CAVEATS

This ruling is based upon the representations made and information 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. As part of an examination process, the Service may verify the information, representations and other data submitted.

This ruling addresses the granting of relief under § 301.9100-3 as applied to the election to self-certify the Taxpayer as a QOF by filing Form 8996 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 have 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 of the Code and the regulations thereunder to be a QOF. In addition, we express no
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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.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to your authorized representatives.

This letter ruling is being issued electronically in accordance with Rev. Proc. 2024-1. A paper copy will not be mailed to the taxpayer.

Sincerely,

James Yu
Senior Counsel, Branch 4
Office of Associate Chief Counsel
(Income Tax & Accounting)

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