IRS grants 60 more days to file a late Form 8996 self-certifying a partnership as a Qualified Opportunity Fund

Plain-English summary

A limited partnership was set up to be a Qualified Opportunity Fund (QOF), a vehicle that lets investors defer and reduce tax on capital gains reinvested in designated low-income "opportunity zones." To become a QOF, an entity must self-certify each year by filing Form 8996 with its tax return. Here the partnership's accounting firm wrongly assumed that, because the partnership had little activity in its first year, it did not need to file a partnership return at all, so no Form 8996 was filed and the QOF election was missed. After the mistake was found, the taxpayer asked the IRS for "9100" relief to make the election late. The IRS concluded the taxpayer acted reasonably and in good faith (it had relied on a tax professional) and that relief would not prejudice the government, so it granted 60 days to file Form 8996 effective the month the partnership was formed. The ruling only fixes the timing of the election; it does not decide whether the partnership actually qualifies as a QOF.

Ruling snapshot

• Question: Should the taxpayer get a late-election extension under § 301.9100-3 to file Form 8996 self-certifying as a QOF for Year 1?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202325005 Third Party Communication: None
Release Date: 6/23/2023 Date of Communication: Not Applicable
Index Number: 1400Z.02-00
Person To Contact:
------------------------------- ----------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
------------------------------------ --------------------
----------------------------------- Refer Reply To:
CC:ITA:B04
PLR-118821-22
Date:
March 28, 2023

Taxpayer = -------------------------------------------------------------------------------------
GP = -------------------------------------------------------------------
LLC = -------------------------------------
Managing Director = ----------------
Accounting Firm = ----------------------------
State = --------
Date 1 = -------------------------
Date 2 = --------------------------
Date 3 = ---------------------------
Month 1 = --------------
Month 2 = ------
Year 1 = -------
Year 2 = -------
Year 3 = -------

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

This letter responds to Taxpayer's request, dated Date 3, seeking a private letter ruling
granting relief to make a late regulatory election pursuant to sections 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations.

Specifically, Taxpayer requests an extension of time to file Form 8996, Qualified
Opportunity Fund, for purposes of making the election, under section 1.1400Z2(d)-
1(a)(2)(i) of the Income Tax Regulations, to be certified as a qualified opportunity fund
(QOF), as defined in section 1400Z-2(d) of the Internal Revenue Code1, and (2) to be
treated as a QOF, effective as of the month Taxpayer was formed, as provided under
section 1400Z-2(d) and section 1.1400Z2(d)-1(a).

1 Unless otherwise specified, all "section" references are to sections of the Internal Revenue Code
or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).

This letter is being issued electronically in accordance with Rev. Proc. 2022-1, 2022-1
I.R.B. 1. A paper copy will not be mailed to Taxpayer.

                                     FACTS

Taxpayer has represented that the facts are as follows.

Taxpayer was organized as a limited partnership under the laws of State on Date 1 and
is classified as a partnership for U.S. federal income tax purposes. Taxpayer was
organized for the purpose of being a QOF and investing in qualified opportunity zone
business property as defined in section 1400Z-2(d)(2) of the Code.

During Years 1 and 2, GP, the sole general partner of Taxpayer, managed Taxpayer
and served as Taxpayer's designated partnership representative for Federal tax
matters. LLC held an interest in GP and provided investment advisory and
management services to Taxpayer. Managing Director of LLC engaged Accounting
Firm on Taxpayer's behalf to prepare Taxpayer's tax filings for Year 1, including any
forms and elections to self-certify Taxpayer as a QOF.

Taxpayer did not receive its initial funding until around Date 2 and did not engage in any
other business activity during Year 1. Due to this lack of business activity, Accounting
Firm mistakenly believed that Taxpayer did not need to file Form 1065, U.S. Return of
Partnership Income for Year 1. As such, Taxpayer failed to file a Form 8996 and did
not self-certify as a QOF by the due date.

In Month 2 of Year 3, Manager became aware of Taxpayer's failure to self-certify as a
QOF for Year 1 and contacted Accounting Firm. Taxpayer promptly directed
Accounting Firm to prepare a request for a private letter ruling.

                              LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. 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 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 Year 1 income
tax return because of the incorrect assumptions made by Accounting Firm.

Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to self-
certify as a QOF. As such, 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.

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.

Under section 301.9100-3(b)(2), a taxpayer will not be considered to have
reasonably relied on a qualified tax professional if the taxpayer knew or should
have known that the professional was not —

   (i) competent to render advice on the regulatory election; or
   (ii) 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 § 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 section 6501(a) before the taxpayer's receipt of a ruling
granting relief under this section.

                                  CONCLUSION

Based on the facts and information submitted in connection with this request, we
conclude 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,
Taxpayer is granted 60 days from the date of this letter to file a Form 8996 to make the
election to self-certify as a QOF under section 1400Z-2 and section 1.1400Z2(d)-
1(a)(2)(i) as of Month 1 of Year 1, the month in which Taxpayer was formed. The
election must be made on a completed Form 8996 and attached to Taxpayer's tax
return for Year 1.

This ruling is based upon facts and representations submitted by 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 section 301.9100-3 relief as applied to the election
to self-certify Taxpayer as a QOF by filing Form 8996 for Year 1. Except as expressly
provided herein, no opinion is either 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 section
1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements and structure under
section 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 section 1400Z-2(d)(2), or whether
such entity would be treated as a qualified opportunity zone business, as defined in
section 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. Section 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 section 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 representative.

                                              Sincerely,

                                              Alexa T. Dubert
                                              Senior Technician Reviewer
                                              Branch 4
                                              Office of Chief Counsel
                                              (Income Tax & Accounting)

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