Partnership's late qualified opportunity fund certification is treated as timely

Plain-English summary

A partnership was formed to operate as a qualified opportunity fund and stated
that purpose in its operating agreement. One member told an experienced tax
preparer about the investment and the fund's intention to self-certify. The
preparer filed an extension for another opportunity fund but failed to extend
this partnership's Form 1065, which made its Form 8996 certification late. After
discovering the mistake, the partnership requested relief and filed the return
with Form 8996. The IRS found that the partnership acted reasonably and in good
faith and that treating the election as timely would not prejudice the
government. It therefore treated the filed Form 8996 as timely for the
partnership's election to be and self-certify as a qualified opportunity fund
from the requested date, without deciding whether the partnership otherwise
met the substantive QOF requirements.

Ruling snapshot

• Question: May a partnership's late Form 8996 be treated as timely when its
  tax preparer failed to extend the Form 1065 filing deadline?
• Outcome: Approved. The QOF election and self-certification are treated as
  timely.
• Key authorities: IRC § 1400Z-2; Treas. Reg.
  §§ 1.1400Z2(d)-1(a), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202314003 [Third Party Communication:
Release Date: 4/7/2023 Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 1400Z.02-00
Person To Contact:
---------------------------- --------------------------, ID No. ---------------
------------------- Telephone Number:
------------------------- --------------------
Refer Reply To:
Attn: -------------------- CC:ITA:B04
PLR-112901-22
Date:
January 03, 2023

VIA FAX

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

Taxpayer = -----------------------------------------------------

Other QOF = ----------------------------------------------------------

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

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

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

Date 4 = -------------------------

Date 5 = --------------------------

Date 6 = -------------------

Date 7 = ------------------

Year 1 = -------

X = --------

Y = ----

PLR-112901-22 2

Member A = --------------------

Member B = ---------------------

Tax Return Preparer = ---------------------------

This letter responds to Taxpayer's request dated Date 1. Specifically, Taxpayer
requests relief under Treasury Regulation §§ 301.9100-1 and 301.9100-3 for Taxpayer's
Form 8996 (Qualified Opportunity Fund), as filed on or before Date 2, to be treated as
timely for purposes of the election: (1) to self-certify the Taxpayer as a qualified
opportunity fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue Code
(Code); and (2) for the Taxpayer to be treated as a QOF, effective as of Date 3, as
provided under Code § 1400Z-2 and Treasury Regulation § 1.1400Z2(d)-1(a).

                                       FACTS

According to the information and representations provided, Taxpayer, a partnership
treated as limited liability company for U.S. tax purposes, formed on Date 4, for the
purpose of being a QOF and investing in qualified opportunity zones (QOZ). Taxpayer’s
LLC operating agreement states the Taxpayer’s intention to be a QOF. Taxpayer
currently has two members, Member A and Member B. Member A owns a X percent
interest in Taxpayer, while Member B owns a Y percent interest.

On Date 5, Member A notified Tax Return Preparer, Member A’s certified public
accountant who has filed Member A’s business and personal tax returns for several
years prior to Year 1, of their investment in Taxpayer and Taxpayer’s intention to self-
certify as a QOF in Year 1. According to the information and representations provided,
Tax Return Preparer had experience with preparing income tax returns for taxpayers
with investments in QOFs and was familiar with the self-certification requirements of
QOFs.

On Date 6, Tax Return Preparer prepared an estimate of Member A’s personal federal
income tax liability for Year 1, which reflected the federal income tax treatment of
Member A’s investments in two QOFs, Taxpayer and Other QOF. Other QOF was also
formed in Year 1 for the purpose of investing in QOZ and self-certifying as a QOF.

On Date 7, Tax Return Preparer notified Member A that Tax Return Preparer had failed
to file an automatic extension of time to file the Taxpayer’s Form 1065 for Year 1.
However, Tax Return Preparer did file an automatic extension of time to file Other
QOF’s Form 1065 for Year 1.

Upon discovering the failure to file the automatic extension to file Taxpayer’s Form 1065
for Year 1, Taxpayer proceeded to prepare this private letter ruling request. Taxpayer
represents that since submitting this private letter ruling request on Date 1, Taxpayer

PLR-112901-22 3

has filed its Form 1065, which included a completed Form 8996, for Year 1 with the
appropriate IRS Service Center on or before Date 2.

                             LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Treasury Regulation § 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 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 the Taxpayer did not file its Form 8996 by the due date of its income tax
return (including extensions) due to Tax Return Preparer’s failure to file an automatic
extension of time to file Taxpayer’s Form 1065 for Year 1.

Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF
and electing to self-certify as a QOF. As such, these elections are regulatory elections,
as defined in § 301.9100-1(b). According to Treasury Regulation § 301.9100- 3(a),
requests for extensions of time for regulatory elections that do not meet the
requirements of Treasury Regulation § 301.9100-2 (automatic extensions) must be
made under the rules of Treasury Regulation § 301.9100-3. Additionally, requests for
relief subject to § 301.9100-3 will be granted when the taxpayer provides evidence to
establish that the taxpayer acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the government.

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.

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;

PLR-112901-22 4

   (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.

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—

   (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's request for extension of time to elect to be a QOF and to self-
certify as a QOF is a regulatory election governed by Treasury Regulation § 301.9100-

3. We further conclude that, based on the facts and information submitted in connection
   with this request, Taxpayer has acted reasonably and in good faith, and that the
   granting of relief would not prejudice the interests of the government. Accordingly,

PLR-112901-22 5

Taxpayer has satisfied the requirements of the regulations for the granting of relief, and
Taxpayer's Form 8996, filed on or before Date 2, certifying the Taxpayer as a QOF as of
Date 3 is considered timely filed.

                                     CAVEATS

This ruling is based upon facts and representations submitted by the Taxpayer and
accompanied by penalty of perjury statements executed by the appropriate parties.
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 addresses the granting of Treasury Regulation § 301.9100-3 relief as applied
to the election to self-certify the Taxpayer as a QOF by filing Form 8996 for Year 1.
Specifically, we have no opinion, either express or implied, concerning whether any
investments made into Taxpayer are qualifying investments as defined in Treasury
Regulation § 1.1400Z2 (a)-1(b)(34) or whether Taxpayer meets the requirements and
structure under § 1400Z-2 and the regulations thereunder to be a QOF. In addition, we
also 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.

A copy of this letter must be attached to any 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.

This ruling is directed only to the taxpayer requesting it. Code § 6110(k)(3) 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 Code § 6110.

Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.

PLR-112901-22 6

This letter is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-
21 I.R.B. 859 and Rev. Proc. 2022-1, 2022-1 I.R.B. 1. A paper copy will not be mailed
to the taxpayer.

                                            Sincerely,




                                            Mon L. Lam
                                            Senior Counsel, Branch 4
                                            Office of Chief Counsel
                                            (Income Tax & Accounting)

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