Late opportunity-fund self-certification is treated as timely

Plain-English summary

A partnership formed to operate as a qualified opportunity fund filed its first return without Form 8996 because its return preparer omitted the form. A later adviser discovered the omission and filed amended returns with Forms 8996 for the first three years. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government because the partnership and its investors had consistently acted as though the fund election were effective from the first year. It treated the amended first-year Form 8996 as timely filed, allowing the partnership to self-certify as a qualified opportunity fund for that year. The IRS did not determine whether the partnership otherwise met the substantive requirements for qualified opportunity fund status.

Ruling snapshot

• Question: May the partnership's late Form 8996 self-certification as a qualified opportunity fund be treated as timely?
• Outcome: Approved, the amended first-year Form 8996 is considered timely filed
• Key authorities: IRC § 1400Z-2(d), (e); 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: 202346001                                             Third Party Communication: None
 Release Date: 11/17/2023                                      Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                               Person To Contact:
 -----------------------------------------------               ---------------------, ID No. -----------------
 -------------------------------------                         Telephone Number:
 -------------------------------------                         ---------------------
                                                               Refer Reply To:
                                                               CC:ITA:B05
                                                               PLR-102156-23
                                                               Date:
                                                               August 17, 2023




Legend

 Taxpayer        =   -------------------------------------------------------------------------
 State           =   -------------
 Manager         =   ---------------------------
 Member 1        =   -----------------------------------------------------------
 Member 2        =   -----------------------------------------------------
 Member 3        =   --------------------------------------------------------
 Advisor 1       =   ------------------------
 Advisor 2       =   ----------------------
 Advisor 3       =   --------------------------------------------------------------------------------
 Firm            =   --------------------------
 Date 1          =   -----------------------
 Date 2          =   -------------------------
 Date 3          =   ---------------------
 Date 4          =   -----------------
 Year 1          =   -------
 Year 2          =   -------
 Year 3          =   -------


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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administrations Regulations to (1) make a timely election under
§ 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations to be certified as a qualified
opportunity fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue Code
(Code); and (2) for Taxpayer to be treated as a QOF, effective as of the month
PLR-102156-23                                2

Taxpayer was formed in Year 1, as provided under § 1400Z-2(d) of the Code and
§ 1.1400Z2(d)-1(a) of the Income Tax Regulations.

                                          FACTS

Taxpayer is a limited liability company classified as a partnership for Federal income tax
purposes, organized under the laws of State on Date 2. Taxpayer is a cash method
taxpayer and reports income on a calendar year basis. Taxpayer was formed to
operate as a QOF as defined in § 1400Z-2(d) of the Code and to hold qualified
opportunity zone property, as defined in § 1400Z-2(d)(2)(A) of the Code. Taxpayer is
comprised of 3 members: Member 1, Member 2, and Member 3. Taxpayer is managed
by Manager.

Taxpayer retained the services of Advisor 1 to prepare its Federal Income Tax return for
Year 1. Advisor 1 timely filed Taxpayer’s Form 1065 on or before Date 3 but failed to
include a Form 8996, Qualified Opportunity Fund, (Form 8996) with its return for Year 1.
As a result, Taxpayer did not make the regulatory election to self-certify as a QOF for
Year 1. Advisor 1 passed away approximately one month after filing Taxpayer’s return
for Year 1. Shortly after, Taxpayer enlisted the services of Advisor 2 to timely file its
Form 1065 for Year 2 and Year 3. After review of Taxpayer’s previously filed returns,
Advisor 2 discovered that Taxpayer failed to include a Form 8996 with its Federal
Income Tax return for Year 1. Upon discovering that Taxpayer failed to include the
Form 8996 with its Year 1 Federal income tax return, Advisor 2 advised Taxpayer to file
amended returns including the Form 8996 for Year 1, Year 2, and Year 3. On Date 4,
Advisor 2 electronically filed amended returns on behalf of Taxpayer for Year 1, Year 2,
and Year 3, including the Form 8996. Shortly after, Taxpayer engaged Firm to pursue
relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations.

Taxpayer represents that it acted reasonably and in good faith and granting of the relief
will not prejudice the interests of the government. Taxpayer and Advisor 3 represents
that granting of an extension to make a timely election under § 1.1400Z2(d)-1(a)(2)(i) of
the Income Tax Regulations to be certified as a QOF for Year 1 will not change any tax
liabilities of the Taxpayer, or as reported to its investors, as Taxpayer intended to elect
to be a QOF beginning in Year 1, and Taxpayer has acted consistently as a QOF since
Taxpayer was formed. Taxpayer and Advisor 3 represent that granting the relief under
§ 301.9100-3 of the Procedure and Administration Regulations for Year 1 will not result
in a lower tax liability for Taxpayer or its investors in the aggregate for Year 1, and
subsequent taxable years affected by the election, than if the election had been made
timely as Taxpayer has acted consistently with the intended election. To the best of
Taxpayer and Advisor 3’s knowledge, the investors of Taxpayer have also acted
consistently with a valid election by Taxpayer to be a QOF as of Year 1.
PLR-102156-23                                 3


                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations 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
field return in 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 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
Federal income tax return (including extensions).

Because § 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations 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) 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 section § 301.9100-3(b) a taxpayer is deemed to have acted reasonably and in
good faith if, the taxpayer requests relief before the failure to make the regulatory
election is discovered by the Service, or reasonably relied on a qualified tax
professional, and the tax professional failed to make, or advise the taxpayer to make the
election. However, a taxpayer is not considered to have reasonably relied on a qualified
tax professional if the taxpayer knew or should have known that the professional was
not competent to render advice on the regulatory election or was not aware of all
relevant facts.

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;
PLR-102156-23                                 4


       (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) 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
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) of the Code before the taxpayer’s receipt of
a ruling granting relief under this section. The IRS may condition a grant of relief on the
taxpayer providing the IRS with a statement from an independent auditor providing an
affidavit, in accordance with section 301.9100-3(e)(3) of the Procedure and
Administration Regulations, certifying that the interests of the Government are not
prejudiced pursuant to section 301.9100-3(c)(1)(i) of the Procedure and Administration
Regulations.

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 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,
Taxpayer has satisfied the requirements of the regulations for the granting of relief and
Taxpayer's Form 8996, filed on Date 4, 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 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.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by all appropriate parties.
This office has not verified any of the material submitted in support of the request for a
PLR-102156-23                                  5

ruling. However, as part of an examination process, the Service may verify the factual
information, representations, and other data submitted.

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 the taxpayer meets the
requirements under § 1400Z-2 of the Code and the regulations thereunder to be a QOF.
Further, we also express no opinion on whether any interest in any QOZB owned by
Taxpayer qualifies as qualified opportunity zone property, as defined in § 1400Z-2(d)(2),
or whether any business 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.

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.

                                           Sincerely,



                                           Kyle C. Griffin
                                           Senior Counsel, Branch 5
                                           Office of Associate Chief Counsel
                                           (Income Tax and Accounting)


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