Extension granted for a partnership to self-certify as an opportunity fund

Plain-English summary

A limited liability company taxed as a partnership was formed to operate as a qualified opportunity fund and bought property in a qualified opportunity zone. Its members failed to file the partnership's return, request an extension, or attach Form 8996 by the deadline because of events beyond their control. The IRS concluded that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file Form 8996 with the relevant original or amended return or administrative-adjustment request. The ruling did not decide whether the partnership's investments qualified or whether it otherwise met the requirements for qualified opportunity fund status.

Ruling snapshot

• Question: Could the partnership receive more time to file Form 8996 and self-certify as a qualified opportunity fund for its first year?
• Outcome: Approved, with 60 days from the ruling date to file Form 8996
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                   Washington, DC 20224

 Number: 202342006                                                 Third Party Communication: None
 Release Date: 10/20/2023                                          Date of Communication: Not Applicable
 Index Number: 9100.00-00, 9100.22-00,
               1400Z.02-00                                         Person To Contact:
                                                                   ------------------, ID No. -----------------
                                                                   Telephone Number:
                                                                   --------------------
 ----------------                                                  Refer Reply To:
 ---------------------------------                                 CC:ITA:B04
 --------------------------                                        PLR-102194-23
 -----------------------------                                     Date:
                                                                   July 24, 2023




 -------------
 -------------
-------------------------

Re:

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

State                       =        -------------

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

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

Advisor                     =        ------------------------

Firm                        =        --------------------------

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

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

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

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

Month 1                     =        ----------------------
PLR-102194-23                                           2

Month 2                 =       ---------------------

Year 1                  =       -------


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

This letter responds to Taxpayer’s request dated Date 4, seeking 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
make an election to: (1) self-certify Taxpayer as a Qualified Opportunity Fund (“QOF”)
as defined in section 1400Z-2(d) of the Internal Revenue Code (“Code”); and (2) for
Taxpayer to be treated as a QOF, effective as of the month Taxpayer was formed, as
provided under section 1400Z-2 of the Code and section 1.1400Z2(d)-1(a) of the
Income Tax Regulations. 1

                                                 FACTS

According to the representations and information provided, Taxpayer was organized as
a limited liability company on Date 1 under the laws of State and is classified as a
partnership for Federal income tax purposes. Taxpayer employs the cash method of
accounting and uses a calendar yearend. Taxpayer was organized for the purpose of
being a QOF and to invest in qualified opportunity zone property as defined in § 1400Z-
2(d)(2). Taxpayer is owned by Member A and Member B (collectively referred to as
“Members”).

During Month 1 of Year 1, Members approached Advisor about forming and investing in
a QOF. Advisor discussed various requirements for a partnership to be a QOF. Shortly
thereafter, Taxpayer was formed. During Month 2 of Year 1, Taxpayer purchased
property within a qualified opportunity zone, which is Taxpayer’s only asset.

The Members were responsible for preparing and filing Taxpayer’s Federal income tax
returns. Due to intervening events beyond Members’ control, Member did not timely file
Taxpayer’s Year 1 Form 1065, U.S. Return of Partnership Income, nor did Members
timely request an extension on Form 7004, Application for Automatic Extension of Time
to File Certain Business, Income Tax, Information, and Other Returns, for the year. As a
result, Members failed to file a timely Form 8996, Qualified Opportunity Fund, to self-
certify Taxpayer as a QOF for Year 1.

On Date 3, Members consulted with Advisor regarding the late filing of Taxpayer’s Year
1 Form 1065. Advisor informed Members that in order for Taxpayer to have self-certified
as a QOF for Year 1, a completed Form 8996 should have been attached to Taxpayer’s
Year 1 Form 1065 and filed by Date 2, or a timely extension should have been obtained.
1
 Unless otherwise specified, all “section” references are to sections of the Internal Revenue Code, 26
U.S.C., or the Treasury Regulations, 26 C.F.R. pt. 1 or 26 C.F.R. pt. 301.
PLR-102194-23                                 3

As recommended by Advisor, Members promptly engaged Firm to prepare Taxpayer’s
late Year 1 Form 1065 and a private letter ruling request seeking an extension to self-
certify Taxpayer as a QOF.


                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Treas. Reg. § 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 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 due to intervening
events beyond Members’ control.

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 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
§ 301.9100-1(b).

Section 301.9100-3(a) provides that requests for extensions of time for regulatory
elections (other than automatic changes 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 granting 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 Internal Revenue Service (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
PLR-102194-23                                 4


       (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 section 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 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
Taxpayer an extension of 60 days from the date of this letter ruling to file a Form 8996
to make the election to self-certify as a QOF under § 1400Z-2 and § 1.1400Z2(d)-
1(a)(2)(i). The election must be made on a completed Form 8996 and attached to
Taxpayer’s Year 1 original or amended tax return or to Taxpayer’s administrative-
adjustment request (as applicable).
PLR-102194-23                                  5

This ruling is based upon the representations made and information 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 information, representations, and other data submitted.

This ruling addresses the granting of relief under § 301.9100-3 as applied to the election
to self-certify Taxpayer as a QOF by filing Form 8996 for Year 1. Specifically, we have
no opinion, either expressed or implied, concerning whether any investments made into
Taxpayer are qualifying investments as defined in § 1.1400Z2(a)-1(b)(34) or whether, at
any time, Taxpayer met or meets the requirements under § 1400Z-2 and the regulations
thereunder to be a QOF. In addition, 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. Further, we have
no opinion, either expressed or implied, as to the tax consequences of the late filing of
Taxpayer’s Form 1065 for Year 1.

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.

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 § 6110.

In accordance with the Form 2848, Power of Attorney and Declaration of
Representation, on file with this office, a copy of this letter is being sent to your
authorized representatives.


                                                   Sincerely,



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




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