Qualified opportunity fund self-certification treated as timely

Plain-English summary

A partnership was formed to operate as a qualified opportunity fund and relied on tax professionals to prepare its first-year return and Form 8996. The tax preparer believed an accounting firm would prepare the return, while that firm had only agreed to advise on the QOF requirements. As a result, no first-year return or self-certification was filed on time. After discovering the misunderstanding, the partnership filed the missing returns and Forms 8996 and requested relief. The IRS found reasonable reliance, good faith, and no prejudice to the government, and treated the first-year Form 8996 as timely. The ruling did not decide whether the partnership or its investments otherwise met the qualified opportunity zone requirements.

Ruling snapshot

• Question: May the partnership's late Form 8996 be treated as timely for QOF self-certification from its formation month?
• Outcome: Approved, the already filed first-year Form 8996 is treated as timely
• 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: 202449008 Third Party Communication: None
Release Date: 12/6/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1400Z.02-00
Person To Contact:
---------------------- --------------------------, ID No. ----------------
----------------------- -----------------
---------------------------- Telephone Number:
-------------------------------- --------------------
Refer Reply To:
CC:ITA:B05
PLR-106087-24
Date:
September 06, 2024

Legend:
Taxpayer = ------------------------------------------------
Date 1 = ---------------------
Date 2 = --------------------------
Date 3 = -----------------
Month 1 = ------
Month 2 = --------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------
State = -------------
Tax Preparer = ---------------------------------------
Accounting Firm = --------------------------------
Law Firm = --------------------------------

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

This ruling responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations, granting an extension of time to make a timely election
under § 1.1400Z-2(a)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a
Qualified Opportunity Fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue
Code (Code), effective the month Taxpayer was formed in Year 1.
PLR-106087-24 2

                                    FACTS

Taxpayer represents the facts as follows:

Taxpayer is a limited liability company organized under the laws of State on Date 2.
Taxpayer is treated as a partnership for Federal income tax purposes. Taxpayer uses
the accrual method of accounting and the calendar year as its taxable year.

Taxpayer was formed for the purpose of investing in a Qualified Opportunity Zone
Property and operating as a QOF as defined in § 1400Z-2(d)(1). Taxpayer intended to
be treated as a QOF from its inception but relied upon its tax advisors to ensure that
any needed forms to obtain QOF status were prepared and timely filed.

In the years prior to Taxpayer’s formation, Taxpayer’s partners, as well as Taxpayer’s
affiliated companies, employed Tax Preparer for their tax compliance work. Taxpayer
was not aware of the requirement to file Form 8996 with Taxpayer’s timely filed tax
return and believe Tax Preparer was engaged to properly prepare and file its Year 1 tax
return along with any needed forms to obtain QOF status.

Taxpayer also engaged Accounting Firm and Law Firm to advise Taxpayer and Tax
Preparer on the QOF rules and requirements in preparing and filing its 2020 return. Tax
Preparer was integrated in all discussions and copied on all communications with
Accounting Firm and Tax Firm relating to Taxpayer and its QOF status.

Tax Preparer mistakenly believed that Accounting Firm had been engaged to prepare
Taxpayer’s initial Year 1 return and Form 8996. Accounting Firm was engaged only to
advise Taxpayer on the QOF requirements, not to prepare and file the return. Due to
this misunderstanding, Tax Preparer did not prepare or file Taxpayers Year 1 return.

In Month 1 of Year 3, Tax Preparer asked Accounting Form for a copy for the
Taxpayer’s Year 1 Form 8996 to aid in the preparation of the Year 2 returns for owners
of Taxpayer. Accounting Firm informed Tax Preparer that they did not prepare or file
the Year 1 return. Tax Preparer realized the Year 1 return, including any elections
necessary to become a QOF, had not been prepared or filed and informed Taxpayer of
such.

Upon realization of the failure to file, Taxpayer engaged Accounting Firm to prepare its
Year 1 and subsequent returns as well as corresponding Forms 8996. Accounting Firm
filed Taxpayer’s Year 1 Form 1065 and Form 8996 on Date 3, intending to make the
election to self-certify as a QOF as of the month Taxpayer was formed.

After preparing and filing the Year 1 and subsequent returns, and because the intended
election was not timely made, Accounting Firm proceeded to draft the ruling request that
Taxpayer is granted an extension of time to make a timely election under § 1.1400Z-
2(a)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a Qualified Opportunity
PLR-106087-24 3

Fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue Code (Code), effective
the month Taxpayer was formed in Year 1.

                              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, Qualified Opportunity Fund,
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 due to the Tax Preparer’s misunderstanding of which part was responsible for
filing the Year 1 return.

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).

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 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, § 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer—
PLR-106087-24 4

   (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.

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 § 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. Consequently, the Form
8996 attached to Taxpayer’s return for Year 1, filed Date 3, is considered timely filed,
and Taxpayer has thereby made the election under § 1400Z-2 and
§ 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF for Year 1. Taxpayer should submit a
copy of this letter ruling to the Service Center where Taxpayer files its returns along with
a cover letter requesting that the Service associate this ruling with the Year 1 return.

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-106087-24 5

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 and the regulations thereunder to be a QOF.

Further, we express no 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.

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.

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

                                                        Sincerely,



                                                        Kyle Griffin
                                                        Senior Counsel, Branch 5
                                                        Office of Associate Chief Counsel
                                                        (Income Tax & Accounting)

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