Opportunity fund gets 60 days for late certification

Plain-English summary

A partnership formed to operate as a qualified opportunity fund hired an accounting firm to prepare and file its first partnership return. The firm timely filed the return but inadvertently indicated that no Form 8996 was attached, even though the operating agreement required the fund to self-certify and maintain at least 90 percent of its assets in qualified opportunity zone property. The partnership consistently represented itself to investors as a QOF and later filed Form 8996 with its next return. The IRS found reasonable action, good faith, and no prejudice to the government, and granted 60 days to attach Form 8996 to an amended first-year return or administrative-adjustment request. The ruling did not determine whether the fund or its investments otherwise satisfied the opportunity-zone requirements.

Ruling snapshot

• Question: Could the partnership file a late first-year Form 8996 after its accounting firm omitted the certification?
• Outcome: Approved, with 60 days to file
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

    Internal Revenue Service                                      Department of the Treasury
                                                                  Washington, DC 20224

    Number: 202344012                                             Third Party Communication: None
    Release Date: 11/3/2023                                       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-104198-23
                                                                  Date:
                                                                  August 08, 2023



Re:


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

State                             =   --------

Firm                              =   -------------
                                                      1
Advisor                           =

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

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

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

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

Year 1                            =   -------

Year 2                            =   -------

Year 3                            =   -------



1
    ---------------------------

PLR-104198-23                                      2




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

This responds to Taxpayer’s request dated Date 1, seeking relief to make a late
regulatory election pursuant to §§ 301.9100-1 and 301.9100-3.2 Specifically, Taxpayer
requests an extension of time to file Form 8996, Qualified Opportunity Fund, to (1) self-
certify Taxpayer as a Qualified Opportunity Fund (QOF) as defined in § 1400Z-2(d) of
the Code; and (2) be treated as a QOF, effective as of the month Taxpayer was formed,
as provided under § 1400Z-2 and § 1.1400Z2(d)-1(a).

                                               FACTS

The information and affidavits submitted reflect the following:

Taxpayer was organized as a limited liability company on Date 2 under the laws of State
and is treated as a partnership for federal income tax purposes. Taxpayer uses the cash
method of accounting and reports income on a calendar year basis.

As set forth in its operating agreement, Taxpayer’s purpose is to be a QOF and invest
and hold at least ninety percent of its assets in qualified opportunity zone property as
such term is defined in § 1400Z-2(d)(2). The operating agreement also provides that
Taxpayer shall cause the Form 8996 to be prepared and filed.

Taxpayer retained Firm to provide tax consulting and compliance services, including
preparing and filing Taxpayer’s Year 1 Form 1065, U.S. Return of Partnership Income.
Firm is a licensed certified public accounting firm which provides various tax consulting
services, including tax compliance. Taxpayer believes that Firm was aware of the
relevant facts relating to the Form 8996 and that Firm understood the Form 8996 must
be included with Taxpayer’s Year 1 federal income tax return to self-certify as a QOF.

Taxpayer’s Year 1 Form 1065 was extended until September 15, Year 2, and Firm
timely filed the Year 1 federal income tax return electronically on Date 3. Firm, however,
did not include the Form 8996 with the Year 1 federal income tax return. On Date 4,
Firm electronically filed Taxpayer’s Year 2 federal income tax return, which included a
Form 8996.

Taxpayer engaged Advisor to prepare its Year 3 federal income tax return and to
provide tax consulting services related to its status as a QOF. Thereafter, Advisor
informed Taxpayer that Form 8996 was not included with Taxpayer’s Year 1 federal

2
 Unless otherwise specified, all “section” references are to sections of the Internal Revenue Code, 26
U.S.C. (Code), or the income Tax Regulations or Procedure and Administration Regulations, 26 C.F.R. pt.
1 or 26 C.F.R. pt. 301.

PLR-104198-23                                 3

income tax return. Firm has since indicated that, when preparing Taxpayer’s Year 1
federal income tax return, it inadvertently indicated on the tax return that Taxpayer was
not attaching Form 8996 to certify as a QOF.

Notwithstanding the inadvertent failure to file Form 8996 for Year 1, Taxpayer has filed
its federal income tax returns as if the intended election to be a QOF had been made
and has provided information to its investors indicating it is a QOF. Taxpayer’s Year 1
federal income tax return is not under examination by the Service.

                                  LAW AND ANALYSIS

Section 13823(a) of Public Law 115-97, commonly known as the Tax Cuts and Jobs Act
of 2017, provides for the deferral of inclusion in gross income of eligible capital gain
reinvested in a QOF and the exclusion of capital gain from the sale or exchange of an
investment in the QOF. 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 (Commissioner) in the forms or instructions, or in publications or
guidance of the Internal Revenue Service (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).

Inasmuch as § 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).

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 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 Service;

PLR-104198-23                                4

      (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.

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)
provides the standards the Commissioner will use to determine when the interests of
the Government are prejudiced.

Section 30.9100-3(c)(1) provides—

      (i) 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).

      (ii) 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

PLR-104198-23                                 5

       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 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 attached to the
Taxpayer’s amended Year 1 tax return or administrative-adjustment request (as
applicable).

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. 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 the Taxpayer as a QOF by filing Form 8996 for Year 1.

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 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 under § 1400Z-2
of the Code and the regulations thereunder to be a QOF. In addition, we 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 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) of the Code
provides that it may not be used or cited as precedent.

PLR-104198-23                                       6


In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to your authorized representative.



                                                        Sincerely,




                                                        Stephen J. Toomey
                                                        Senior Counsel, Branch 4
                                                        Office of Associate Chief Counsel
                                                        (Income Tax & Accounting)


cc:       --------------------
-------------------------------------

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

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