Three late opportunity fund self-certifications were treated as timely

Plain-English summary

A partnership was formed to operate as a qualified opportunity fund and told its longtime accountant of that intent. The accountant prepared three years of partnership returns but did not attach Form 8996 for any year, including the third year after discovering the earlier omissions. After that accountant died, another accountant filed amended returns with Forms 8996 for all three years. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It treated the three Forms 8996 as timely, so the partnership made its qualified opportunity fund self-certification elections for those years, without deciding whether the partnership or its investments otherwise met the opportunity-zone rules.

Ruling snapshot

• Question: Could Forms 8996 attached to amended returns be treated as timely qualified opportunity fund self-certifications for three years?
• Outcome: approved
• 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: 202328006                                             Third Party Communication: None
 Release Date: 7/14/2023                                       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:B04
                                                               PLR-120735-22
                                                               Date:
                                                               April 14, 2023




 Taxpayer                  =     ----------------------------------------------
 Partner A                 =     -------------------------------------------
 Partner B                 =     ----------------------------------------
 Accounting Firm           =     ---------------------------
 CPA 1                     =     -----------------
 CPA 2                     =     -----------------
 Advisor 1                 =     ----------------------------------------------
 X                         =     ---
 Y                         =     --
 Date 1                    =     --------------------
 Date 2                    =     ---------------------
 Date 3                    =     ------------------
 Date 4                    =     ----------------------
 Year 1                    =     -------
 Year 2                    =     -------
 Year 3                    =     -------
 State A                   =     -----------
 State B                   =     ----------

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

This letter responds to Taxpayer's request, dated Date 4 and supplemental
correspondence. Specifically, Taxpayer requests relief, pursuant to sections 301.9100-
1 and 301.9100-3 of the Procedure and Administration Regulations, for its Forms 8996,
Qualified Opportunity Fund, filed on Date 3, to be treated as timely for purposes of the
election to: (1) self-certify the Taxpayer as a qualified opportunity fund (“QOF”) as
defined in section 1400Z-2(d) of the Internal Revenue Code (Code); and (2) for the
Taxpayer to be treated as a QOF, effective as of the month Taxpayer was formed, as
PLR-120735-22                                        2

provided under section 1400Z-2 of the Code and section 1.1400Z2(d)-1(a) of the
Income Tax Regulations.1

                                                 FACTS

Taxpayer has represented that the facts are as follows.

Taxpayer was organized as a limited liability company under the laws of State A 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). Partner A
owns X percent of Taxpayer while Partner B owns the remaining Y percent.

Partner A and Partner B were clients of Accounting Firm for many years. CPA 1 of
Accounting Firm was an experienced certified public accountant licensed in State B.

CPA 1 served as the primary tax preparer for Partner A and Partner B throughout their
lengthy business relationship with Accounting Firm. Partner A engaged CPA 1 to
prepare Taxpayer’s Forms 1065, Return of Partnership Income for Years 1 through 3.
When Partner A initially engaged CPA 1 to prepare the Forms 1065, Partner A informed
CPA 1 that Taxpayer intended to operate as a QOF. Partner A provided CPA 1 with the
information necessary to complete the Forms 8996 for each of the years.

CPA 1 prepared and filed Taxpayer’s Forms 1065 for Years 1 and 2 but failed to attach
completed Forms 8996 to the returns. While preparing Taxpayer’s Form 1065 for Year
3, CPA 1 discovered the earlier failures and informed Partner A. On Date 2, CPA 1
prepared and timely filed Taxpayer’s Form 1065 for Year 3 but again did not attach a
completed Form 8996 to the return. Shortly after Date 2, CPA 1 died. On Date 3,
another certified public accountant with Accounting Firm, CPA 2, filed, on Taxpayer’s
behalf, amended returns with completed Forms 8996 attached for Years 1 through 3
(“Amended Returns”). Shortly thereafter, Partner A engaged Advisor 1 to seek a private
letter ruling for relief under sections 301.9100-1 and 301.9100-3.

                                        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.



1 Hereinafter, references to “section” are to sections of the Internal Revenue Code or the Treasury

Regulations (26 CFR Part 1) or (26 CFR Part 301) as applicable.
PLR-120735-22                                3

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 Taxpayer did
not file Forms 8996 by the due date of its income tax returns (including extensions) for
Years 1 through 3 due to CPA 1’s failure to attach completed Forms 8996 to Taxpayer’s
returns for these years.

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 301.9100-1(b) defines the term “regulatory election” as including any
election, whose due date is prescribed by a regulation published in the Federal
Register. Because section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for
an entity to self-certify as a QOF, this election is a regulatory election within the
meaning of section 301.9100-1(b).

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.
PLR-120735-22                                 4

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 representations 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, Taxpayer has
satisfied the requirements of the regulations for the granting of relief, and the Forms
8996, attached to Taxpayer’s Amended Returns, for Years 1 through 3 and filed on
Date 3, shall be considered timely filed. Accordingly, Taxpayer has thereby made the
election under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i) to self-certify as a
QOF for Years 1 through 3. Taxpayer should submit a copy of this letter ruling to the
IRS Service Center where Taxpayer files its income tax returns, along with a cover letter
requesting that the Service associate this ruling with Taxpayer’s Amended Returns.

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
PLR-120735-22                                5

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, Year 2, and Year 3.
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
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). Finally, 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) 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. 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.


                                                 Sincerely,




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



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