IRS grants a limited partnership a late election to self-certify as a Qualified Opportunity Fund after accounting-firm turnover caused a missed deadline

Plain-English summary

An entity becomes a Qualified Opportunity Fund (QOF), a vehicle for deferring and reducing tax on capital gains reinvested in low-income "opportunity zones," by self-certifying on Form 8996 attached to a timely filed tax return. Here the taxpayer was a limited partnership formed to invest in qualified opportunity zone property; its only asset was an interest in a lower-tier partnership developing real estate in an opportunity zone. The partnership relied on its accounting firm to handle all tax filings, but the accountant-partner who had been managing the account left the firm, and by the time a replacement was assigned and learned the partnership existed, the deadline to file the partnership return (and with it the Form 8996) had already passed. No extension had been requested. Once the error surfaced, the partnership filed its return with Form 8996 attached and asked the IRS for "9100 relief" (an extension of time to make a missed regulatory election under Treas. Reg. § 301.9100-3). The IRS granted it, finding the taxpayer reasonably relied on a qualified tax professional and that relief would not lower its tax or prejudice the government. The Form 8996 is treated as timely, so the QOF self-certification stands as of the intended date. The IRS did not decide whether the taxpayer actually qualifies as a QOF. It matters to opportunity-zone investors whose self-certification lapsed because of a preparer's mistake or staffing change.

Ruling snapshot

• Question: Should the IRS grant a limited partnership an extension of time under § 301.9100-3 to file a late Form 8996 self-certifying it as a Qualified Opportunity Fund after its accounting firm missed the deadline?
• Outcome: approved (the Form 8996 filed on or about Date 6 is treated as timely filed)
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. § 1.1400Z2(d)-1(a)(2); Treas. Reg. §§ 301.9100-1, 301.9100-3; IRC §§ 6662, 6501

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202339004                                              Third Party Communication: None
Release Date: 9/29/2023                                        Date of Communication: Not Applicable
Index Number: 9100.00-00
                                                               Person To Contact:
--------------------------------------                         ----------------------, ID No. -----------------
----------------------------------                             Telephone Number:
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------------------------                                       Refer Reply To:
----------------------------------                             CC:ITA:B05
                                                               PLR-101705-23
                                                               Date:
                                                               June 26, 2023




TY:

LEGEND

Taxpayer                       =     ----------------------------------------------------------------
GP                             =     -----------------------------------
QOZB LP                        =     ------------------------------------
H                              =     -------------------------------------
ABBR                           =     ------
Accounting Firm                =     ----------------------------
Individual Manager             =     ----------------------
AP1                            =     ----------------------
AP2                            =     --------------
C1                             =     ---------------
City                           =     -----------------
State A                        =     -------------
State B                        =     --------
Date 1                         =     --------------------------
Date 2                         =     -----------------
Date 3                         =     -------------------
Date 4                         =     -------------------
Date 5                         =     ----------------------
Date 6                         =     ---------------------------
Month 1                        =     -----------
Month 2                        =     ------
Month 3                        =     ---------
Year 1                         =     -------
Year 2                         =     -------
N1                             =     ---
N2                             =     -------
N3                             =     ---
PLR-101705-23                                   2

 N4                      =    -------
 N5                           -------------

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

This responds to the request by Taxpayer, dated Date 1 for relief under § 301.9100-3 of
the Procedure and Administration Regulations to file Form 8996, Qualified Opportunity
Fund. Specifically, Taxpayer requests that the Internal Revenue Service (Service) grant
to Taxpayer an extension of time to make an election under § 1400Z-2 of the Internal
Revenue Code (Code) and § 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations to self-
certify Taxpayer as a Qualified Opportunity Fund (QOF), effective as of Date 2.

                                              FACTS

The information and affidavits submitted reflect the following facts.

Taxpayer is a limited partnership that was formed under the law of State A on Date 3.
GP is Taxpayer’s general partner and there are N1 limited partners who hold ownership
interests in Taxpayer proportionate to their contributions to Taxpayer. Individual
Manager is the manager of GP.

Section N2 of Taxpayer’s operating agreement provides that Taxpayer was formed in
order to invest in and hold at least N3% of its assets in qualified opportunity zone
property, as required by § 1400Z-2(d)(1) & (2) and the implementing regulations.
Section N4 of Taxpayer’s operating agreement states that each partner acknowledges
and agrees that the partnership is intended to meet the requirements to be a QOF
pursuant to § 1400Z-2 and related regulations. The operating agreement further
authorizes Taxpayer to hold limited partnership interests in qualified opportunity zone
business interests, and manage, supervise and dispose of the qualified opportunity
zone business interests.

Taxpayer’s sole asset is an interest in QOZB LP which was formed to acquire land and
develop real estate in a qualified opportunity zone in City, State B. Beginning on Date
4, the partners of Taxpayer began investing eligible gains into Taxpayer and, as of the
end of Year 1, partners invested $N5 in Taxpayer. Taxpayer invested the monies in
QOZB LP, which in turn developed real property located in a qualified opportunity zone.

The partners of Taxpayer retained Accounting Firm to assist in the structuring of
Taxpayer. Accounting Firm was also retained to handle the tax filings of a number of
business entities related to Taxpayer, including GP and QOZB, all of which have names
that begin with ABBR (the “ABBR Entities”). At the time of Taxpayer’s formation and
funding, Individual Manager had conversations with AP1, an accountant-partner at
Accounting Firm, about two qualified opportunity funds, including Taxpayer. AP1 may
have informed Individual Manager that Accounting Firm would be handling the tax filing
for Taxpayer. Individual manager relied upon Accounting Firm and the representations
PLR-101705-23                                3

of AP1 respecting the filings required to be made with the Service so that Taxpayer
would meet the requirements to be a QOF. Taxpayer, GP and QOZB did not employ
any accountant, law firm or preparer other than Accounting Firm to perform tax filings.

AP1 terminated his relationship with Accounting Firm in Month 1, Year 2 and began
working for a different firm. AP2, an accountant-partner from Accounting Firm, was
assigned to assist with the tax filings of the ABBR Entities in late Month 2, Year 2, which
was after the deadline for filing partnership returns for Year 1. C1, the controller of H
and acting on behalf of Taxpayer and other ABBR Entities, sent to AP2 a list of the
business entities for which tax returns would need to be filed. Subsequently, during
Month 3, Year 2 when preparing to perform tax filings for a number of entities, AP2
learned of Taxpayer’s existence.

On or about Date 5, AP2 realized that Taxpayer had not requested an extension of time
to file a Form 1065, U.S. Partnership Return of Income, for Year 1. As a result, no Form
8996 was filed for Taxpayer for Year 1, with the result that Taxpayer was not self-
certified as a QOF for the month and year during which partners began investing gains
into Taxpayer. AP2 promptly notified Individual Manager of the error. During Month 3,
Year 2 Individual Manager was advised that a timely filed Form 1065 was required in
order for Taxpayer to be self-certified as a QOF. Individual Manager consulted with
Accounting Firm respecting the remedial measures available for self-certifying Taxpayer
as a QOF and was advised to file a request for a private letter ruling and request relief
pursuant to § 9100 of the Procedure and Administration Regulations.

On Date 6 Taxpayer filed with the Service a Form 1065 to which a Form 8996 was
attached for Year 1. Taxpayer represents that the Service has not notified Taxpayer of
its failure to self-certify itself as a QOF for Year 1.

                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations to
carry out the statute’s purposes, including 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 forms or
instructions, or in publications or guidance of the Service, 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).

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)
PLR-101705-23                                 4

of the Procedure and Administration Regulations.

Sections 301.9100-1 through 301.9100-3 of the Procedure and Administration
Regulations 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) of the Procedure and Administration Regulations, a taxpayer is
deemed to have acted reasonably and in good faith if, among other circumstances not
relevant here, the taxpayer requests relief before the failure to make the regulatory
election is discovered by the Service, or although exercising reasonable diligence
(taking into account the taxpayer’s experience and the complexity of the return or
issue), the taxpayer was unaware of the necessity for an election. A taxpayer may
alternatively demonstrate good faith actions if he reasonably relies on a qualified tax
professional and the professional failed to make, or advise the taxpayer to make, the
election.

A taxpayer is deemed not to have acted reasonably and in good faith pursuant to the
provision in § 301.9100-3(b)(3) of the Procedure and Administration Regulations if the
taxpayer—

  (i) seeks to alter a return position for which an accuracy-related penalty has been or
  could be imposed under § 6662 of the Code at the time the taxpayer requests relief,
  and the new position requires or permits a regulatory election for which relief is
  requested;

  (ii) was 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) of the Procedure and Administration Regulations 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) of the Procedure and Administration Regulations 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
PLR-101705-23                                  5

into account the time value of money).

Section 301.9100-3(c)(1)(ii) of the Procedure and Administration Regulations 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 will 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 has satisfied the requirements for the granting of relief. Consequently, the
Form 8996 attached to Taxpayer’s return for Year 1, filed with the Service on or about
Date 6 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 as of Date 2. 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.

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
§ 1.1400Z2(a)-1(b)(34) of the Income Tax Regulations or whether Taxpayer meets the
requirements under § 1400Z-2 of the Code 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 representative.

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.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
PLR-101705-23                                6

an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

                                          Sincerely,



                                          Christina M. Glendening
                                          Senior Counsel, Branch 5
                                          Office of Associate Chief Counsel
                                          (Income Tax & Accounting)

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