Late opportunity-fund certification accepted after adviser missed filing

Plain-English summary

A partnership with eighteen members was formed to operate as a qualified opportunity fund and acquire qualified opportunity zone property. It hired a tax adviser to prepare the required filings, but the adviser failed to enter the partnership into its system as a client needing a filing extension. As a result, neither Form 7004 nor the partnership's first Form 1065 with Form 8996 was timely filed. After discovering the oversight, the partnership filed the late return and certification and sought relief. The IRS found that the partnership acted reasonably and in good faith and that granting relief would not prejudice the government's interests. It treated the filed Form 8996 as timely and recognized the partnership's QOF self-certification for the first year, while expressing no opinion on whether the partnership or its investments otherwise qualified under the opportunity-zone rules.

Ruling snapshot

• Question: May the late Form 8996 be treated as timely when the tax adviser failed to request an extension or file the partnership's first return?
• Outcome: Approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 202343002                                               [Third Party Communication:
Release Date: 10/27/2023                                        Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 1400Z.02-00
                                                                Person To Contact:
------------------------------------------------------------    --------------------------, ID No. ----------------
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-------------------------                                       Telephone Number:
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------------------------                                        Refer Reply To:
                                                                CC:ITA:B04
Attn: ---------------                                           PLR-100791-23
                                                                Date:
                                                                July 25, 2023

VIA FAX



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

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

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

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

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

Date 5                        =        --------------------------

Year 1                        =        -------

Year 2                        =        -------

State Z                       =        --------

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

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

Member C                      =        ---------------------------------------------

PLR-100791-23                                         2

    Member D                 =       --------------------------------------------------

    Member E                 =       --------------------------------------------------------------

    Member F                 =       -----------------------------------------------

    Member G                 =       ----------------------------------------------------------------------------
                                     --------------------------

    Member H                 =       ---------------------------------------------------

    Member I                 =       --------------------------------------------

    Member J                 =       ------------------------------------------------------

    Member K                 =       ---------------------------------------------------------------------------

    Member L                 =       ----------------------------------------------------------- -

    Member M                 =       -----------------------------------------

    Member N                 =       --------------------------------------------------

    Member O                 =       ------------------------------------------

    Member P                 =       ------------------------------------------------------------

    Member Q                 =       -------------------------------------------

    Member R                 =       -------------------------------------------

    Advisor A                =       ------------------------------------------

    Advisor B                =       ---------------------------------



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

This letter responds to Taxpayer's request dated Date 5. Specifically, Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-31 for Taxpayer’s Form 8996,
Qualified Opportunity Fund, as filed on Date 4, to be treated as timely for purposes of
the election: (1) to self-certify the Taxpayer as a qualified opportunity fund (QOF), as
1
 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code
(Code) or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).

PLR-100791-23                                3

defined in § 1400Z-2(d); and (2) for the Taxpayer to be treated as a QOF, effective as of
Date 1, as provided under § 1400Z-2 and § 1.1400Z2(d)-1(a).
                                          FACTS

According to the information and representations provided, Taxpayer, a limited liability
company classified as a partnership for federal tax purposes, was formed on Date 2 in
State Z, for the purposes of qualifying as a QOF and acquiring qualified opportunity
zone property. As of Date 5, Taxpayer has eighteen members, Member A, Member B,
Member C, Member D, Member E, Member F, Member G, Member H, Member I,
Member J, Member K, Member L, Member M, Member N, Member O, Member P,
Member Q, and Member R.

Taxpayer represents that it intended to self-certify as a QOF by filing Form 8996 with its
first tax return for the Year 1 tax year. Taxpayer engaged Advisor A to file the
applicable tax forms and advise Taxpayer on the necessary and appropriate actions to
meet the requirements to be a QOF for the Year 1 tax year. However, Advisor A failed
to input Taxpayer into Advisor A’s internal system as a client for which a Form 7004,
Application for Automatic Extension of Time to File Certain Business Income Tax,
Information and Other Returns, was needed to be filed for the Year 1 tax year. As such,
Advisor A did not file Taxpayer’s Form 1065, U.S. Return of Partnership Income, for the
Year 1 tax year, nor did it request an extension to file by Date 3.

During the summer of Year 2, Taxpayer and Advisor A discovered this oversight.
Taxpayer then filed its late Year 1 return with Form 8996 attached on Date 4. Taxpayer
and Advisor A were aware that the late filing of its return and Form 8996 for the Year 1
tax year did not comply with the requirements under the Treasury Regulations to self-
certify as a QOF. As such, Taxpayer proceeded to engage Advisor B to prepare this
private letter ruling request.

                                  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 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 the Taxpayer
did not file its Form 8996 by the due date of its Year 1 income tax return due to
Taxpayer’s reliance on and Advisor A’s failure to request an automatic extension.

PLR-100791-23                                4

Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF
and electing 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 that do not meet the requirements of § 301.9100-2 (automatic extensions)
must be made under the rules of § 301.9100-3.

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 § 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.

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 § 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

PLR-100791-23                                 5

       (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 § 6501(a) before the taxpayer's receipt of a ruling
granting relief under this section.

                                      CONCLUSION

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer's request for an extension of time to elect to be a QOF and to
self-certify as a QOF is a regulatory election governed by § 301.9100-3. We further
conclude that, based on the facts and information submitted in connection with this
request, 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 Taxpayer's Form 8996, filed on Date 4, certifying the Taxpayer as a QOF
as of Date 1 is considered timely filed. Taxpayer has thereby made the election under §
1400Z-2 and § 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF for Year 1. 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.

                                        CAVEATS

This ruling is based upon facts and representations submitted by the 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 § 301.9100-3 relief as applied to the election to
self-certify the 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

PLR-100791-23                                            6

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 §
1.1400Z2 (a)-1(b)(34) or whether Taxpayer meets the requirements and structure under
§ 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 § 1400Z-2(d)(2), or whether such entity would
be treated as a qualified opportunity zone business, as defined in § 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 Internal Revenue 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 § 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 representatives.

This letter is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-
21 I.R.B. 859 and Rev. Proc. 2023-1, 2023-1 I.R.B. 1. A paper copy will not be mailed
to the taxpayer.

                                                             Sincerely,




                                                             Mon L. Lam
                                                             Senior Counsel, Branch 4
                                                             Office of Chief Counsel
                                                             (Income Tax & Accounting)


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