Qualified opportunity fund received 60 days to file Form 8996

Plain-English summary

A partnership formed to invest in qualified opportunity zone property failed to file its first return, extension request, and Form 8996 on time. Its adviser contacted an accounting firm on the filing deadline, and later communications left responsibility for the filings unclear. The firm eventually filed the partnership return without Form 8996, and the partnership requested relief after discovering the missed self-certification. The IRS concluded that the partnership acted reasonably and in good faith and that relief would not prejudice the government's interests. It gave the partnership 60 days to file an amended return or administrative adjustment request with Form 8996, without deciding whether the partnership or its investments otherwise met the QOF requirements.

Ruling snapshot

• Question: Could the partnership receive extra time to file Form 8996 and self-certify as a qualified opportunity fund for its first year?
• Outcome: Approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                    Department of the Treasury
                                                             Washington, DC 20224


 Number: 202324008                                           Third Party Communication: None
 Release Date: 6/16/2023                                     Date of Communication: Not Applicable
 Index Number: 1400Z.02-00, 9100.00-00
                                                             Person To Contact:
                                                             ------------------------, ID No. -----------------
 ---------------------------------------------------------   Telephone Number:
 ------------------------------                              --------------------
 -------------------------                                   Refer Reply To:
 -------------------------------                             CC:ITA:B08
                                                             PLR-118860-22
                                                             Date:
                                                             March 21, 2023




                                                    LEGEND

                      Taxpayer = -------------------------------------------------------------------------
                                 -------------
                      State    = ----------
                      Firm     = ------------------------
                      CPA      = ---------------
                      Advisor  = --------------
                      Date 1   = ---------------------------
                      Date 2   = --------------------
                      Date 3   = --------------------------
                      Date 4   = ---------------------
                      Date 5   = ---------------------------
                      Year 1   = -------




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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of
the Income Tax Regulations, to (1) make a timely election under section 1.1400Z2(d)-
1(a)(2)(i) to be certified as a qualified opportunity fund (QOF), as defined in section
1400Z-2(d) of the Internal Revenue Code, and (2) for Taxpayer to be treated as a QOF,
PLR-118860-22                                 2

effective for its taxable year ended Date 3, effective as of Date 2, as provided by section
1400Z-2(d) and section 1.1400Z2(d)-1(a) of the Income Tax Regulations.


                                          FACTS

According to the affidavits and additional information provided to us, Taxpayer has
represented that the facts are as follows. Taxpayer is a limited liability company
organized under the laws of State and was formed on Date 2. Taxpayer is classified as
a partnership for U.S. federal income tax purposes and was formed for the purpose of
investing in qualified opportunity zone property and serving as a QOF.

On Date 4, Taxpayer’s Advisor emailed Firm regarding the preparation of Taxpayer’s
Federal income tax return for Taxpayer’s first year of operation - Year 1, the year
Taxpayer was formed and requested an extension be filed. Date 4 was also the due
date for filing the return or extension. The information provided by Taxpayer indicates
that Firm was later engaged to prepare and timely file Taxpayer’s Federal income tax
return and all related forms and elections to self-certify Taxpayer as a QOF, and to treat
Taxpayer as a QOF as of the month Taxpayer was formed.

According to the affidavits and additional information provided to us, Taxpayer and Firm
were aware of the requirement to file Form 8996 (Qualified Opportunity Fund) (Form
8996) with the Taxpayer’s timely filed Federal income tax return for Year 1 for the
Taxpayer to self-certify QOF status and to be treated as a QOF as of the month
Taxpayer was formed. Firm was retained by Taxpayer so that Taxpayer could comply
with the Form 8996 requirements and Firm was expected to file a request for an
automatic extension of time for Taxpayer’s Federal income tax return for Year 1.
However, according to the information submitted to us, Firm failed to file for an
automatic extension. Additionally, Firm failed to file Taxpayer’s Federal income tax
return and all related forms and elections by the due date. As a result, Firm failed to file
Taxpayer’s Federal income tax return or Form 7004, Application for Automatic
Extension of Time to File Certain Business Income Tax, Information, and Other Returns,
for Year 1.

On Date 5, Firm filed Taxpayer’s federal income tax return but did not include Form
8996. Upon learning that the Year 1 Partnership Return and Form 8996 were not timely
filed, Taxpayer engaged Firm to file a private letter ruling request. Taxpayer then filed
this ruling request seeking extension of time to file Form 8996 for Taxpayer’s year
ending Date 3, pursuant to sections 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations. Taxpayer has not yet filed Form 8996 for Year 1.
PLR-118860-22                                3

                                  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, 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 Firm did not
file Taxpayer’s Form 8996 due to a communication error between Firm, Advisor and
Taxpayer’s representatives. Taxpayer did not file its Form 8996 by the due date of its
income tax return (including extensions) due to miscommunication about who had the
responsibility to file the return.

Because section 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 section
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 section 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 section 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, 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 section 6662 at the time the taxpayer
PLR-118860-22                                 4

               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 section 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. Accordingly, based solely on
the facts and information submitted, and the representations made in the ruling request,
we grant the taxpayer an extension of 60 days from the date of this letter ruling to file an
amended return, or an Administrative Adjustment Request (whichever is appropriate) for
Year 1, to make the election under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i).
The election must be made on a completed Form 8996.

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
whether any investments made into Taxpayer are qualifying investments as defined in
section 1.1400Z2(a)–1(b)(34) or whether the taxpayer meets the requirements under
PLR-118860-22                                  5

section 1400Z-2 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
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.

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.

                                           Sincerely,



                                           Kyle C. Griffin
                                           Assistant to the Branch Chief, Branch 5
                                           Office of Associate Chief Counsel
                                           (Income Tax and Accounting)




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