Partnership receives 60 days to make its qualified opportunity fund election

Plain-English summary

A partnership intended to operate as a qualified opportunity fund and relied on professional advisers to handle the required tax filings. Although its advisers had discussed the fund's status, the return preparer failed to identify it as a QOF on the partnership return and omitted Form 8996. The partnership sought extra time after discovering the mistake. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days from the ruling date 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 requirements.

Ruling snapshot

• Question: May the partnership receive extra time to file Form 8996 and self-certify as a qualified opportunity fund?
• 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)(2)(i), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202447015 Third Party Communication: None
Release Date: 11/22/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
-------------------------------
ID No. -----------------
Telephone Number:
------------------------- --------------------
--------------------------------------- Refer Reply To:
------------- CC:ITA:B05
------------------------------- PLR-108283-24
---------------------------- Date:
August 26, 2024

Legend:
Taxpayer = ---------------------------------------------------
Date 1 = -------------------
Date 2 = -------------------
Date 3 = --------------
Date 4 = -------------------------
Date 5 = ------------------
Date 6 = ----------------------
Year 1 = -------
State = -------------
Member A = --------------------
Firm 1 = ---------------------------------------------
Firm 2 = ------------------------------------
Accountant = -------------------------

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

This responds to Taxpayer’s initial request dated Date 1, as supplemented on Date 2,
for an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to file Form 8996, Qualified Opportunity Fund (Form 8996) to be certified as
a qualified opportunity fund (QOF) as defined in section 1400Z-2(d) of the Internal
Revenue Code (Code) effective as of Date 3.
PLR-108283-24 2

                                      FACTS

The information and affidavits submitted reflect the following facts:

Taxpayer is a limited liability company organized under the laws of State, classified as a
partnership for Federal income tax purposes. The operating agreement of Taxpayer,
dated Date 4, states that Taxpayer is formed as a QOF primarily for the purpose of
investing in, holding, managing, and disposing of, Qualified Opportunity Zone Property.
Taxpayer is managed by Member A. Taxpayer’s management was not knowledgeable
about the tax compliance requirements for this type of transaction and consequently
relied upon professionals, tax and legal, to ensure the necessary returns and
documents were filed with the Internal Revenue Service (Service).

On or about Date 5 Member A engaged Firm 1 to provide consulting services that
included planning advice on a proposed opportunity zone investment. Firm 1 was to
analyze the tax consequences of the potential transaction and advise on structuring the
transaction. After forming Taxpayer, on or about Date 6 Member A engaged Firm 2 to
prepare Taxpayer’s Year 1 tax return which was to include Form 8996. Member A had
earlier communicated to Firm 2 that Taxpayer was formed for the purpose of being
treated as a QOF. Firm 2 was given a copy of Taxpayer’s LLC operating agreement
and timely provided with Taxpayer’s financial information. Taxpayer relied upon Firm 2
to properly make the QOF election. Taxpayer requested that Firm 1 speak with the tax
preparer employed by Firm 2 regarding the contents of Form 8996 prior to the filing
deadline. Nevertheless, the tax return preparer from Firm 2 inadvertently failed to
identify Taxpayer as a QOF on Schedule B of the return, and such tax return did not
include Form 8996.

The submission includes an affidavit from Accountant who confirmed that Firm 2 was
provided with Taxpayer’s financial information and organization documents for the
purpose of preparing the tax return. The affidavit states that prior to filing the tax return
emails were exchanged between Firm 1 and Firm 2 and the correspondence identified
Taxpayer as a QOF that was required to make a certification on its tax return.
Accountant acknowledged that the tax return preparer from Firm 2 inadvertently failed to
identify Taxpayer on the Form 1065, U.S. Return of Partnership Income, Schedule B as
a QOF and did not include Form 8996.

After discovering that Taxpayer did not make the election, Taxpayer submitted the
instant private letter ruling request.

                              LAW AND ANALYSIS

Section 13823(a) of Public Law 115-97 (2017), commonly known as the Tax Cuts and
Jobs Act, added provisions to the Code authorizing taxpayers to defer eligible capital
gain through reinvesting the funds into state-designated population census tracks in
low-income communities, known as Qualified Opportunity Zones. Section
PLR-108283-24 3

1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations to carry out
the statute’s purposes, including 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 forms or
instructions, or in publications or guidance of the 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).

Because § 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations 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 of the Procedure and Administration
Regulations 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) of the Procedure and Administration Regulations, a taxpayer is
deemed to have acted reasonably and in good faith if, among other circumstances not
relevant here, he exercised reasonable diligence (taking into account the taxpayer’s
experience and the complexity of the return or issue) but was unaware of the necessity
for the election, or reasonably relied on a qualified tax professional and the tax
professional failed to make, or advise the taxpayer to make, the election. § 301.9100-
3(b)(1)(iii), (v).

A taxpayer is deemed not to have acted reasonably and in good faith pursuant to the
provision in § 301.9100-3(b)(3) of the Procedure and Administration Regulations if the
taxpayer—

   (i) seeks to alter a return position for which an accuracy-related penalty has been
   or could be imposed under § 6662 of the Code at the time the taxpayer requests
   relief, and the new position requires or permits a regulatory election for which
   relief is requested;

   (ii) was informed in all material respects of the required election and related tax
   consequences but chose not to make the election; or

PLR-108283-24 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) of the Procedure and Administration Regulations 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) of the Procedure and Administration Regulations 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) of the Procedure and Administration Regulations 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 § 6501(a) before the taxpayer’s receipt of a ruling
granting relief under that 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 will 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 § 1400Z-2 of the Code
and § 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations. The election must be
made on a completed Form 8996 attached to Taxpayer’s amended return or
administrative-adjustment request (as applicable).

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) of the Income Tax Regulations or whether Taxpayer meets the
requirements under § 1400Z-2 of the Code and the regulations thereunder to be a QOF.
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
PLR-108283-24 5

provides that it may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

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