Partnership received 60 days to self-certify as an opportunity fund

Plain-English summary

A partnership was formed to invest in qualified opportunity-zone property, but a miscommunication between a member's family office and the manager left its return preparer unaware that the entity existed. As a result, the partnership did not file its first Form 1065, seek an extension, or attach Form 8996 to self-certify as a qualified opportunity fund. The partnership and preparer knew self-certification was required, and the partnership represented that relief would not reduce its affected tax liabilities. The IRS found that the partnership acted reasonably and in good faith and granted 60 days to file Form 8996 with an amended return or administrative-adjustment request. The ruling did not decide whether the partnership or its investments otherwise qualified under the opportunity-zone rules.

Ruling snapshot

• Question: Could the partnership receive more time to self-certify as a qualified opportunity fund after a communication failure prevented its preparer from filing the first-year forms?
• Outcome: approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                  Department of the Treasury
                                                          Washington, DC 20224

Number: 202351001                                         Third Party Communication: None
Release Date: 12/22/2023                                  Date of Communication: Not Applicable
Index Number: 1400Z.02-00
                                                          Person To Contact:
--------------------                                      ----------------, ID No. -----------------
--------------------------------------                    Telephone Number:
----------------------------                              ---------------------
-----------------------------------------                 Refer Reply To:
                                                          CC:ITA:B08
                                                          PLR-104682-23
                                                          Date:
                                                          September 27, 2023

TY: -------

Legend

Amount 1         =        -----------------
Amount 2         =        -----------------
Date 1           =        -------------------------
Date 2           =        ------------------
Date 3           =        ----------------------
Date 4           =        ---------------------
Firm             =        --------------------------
Interest X       =        ------
Interest Y       =        ------
Manager          =        ------------------------------
Member 1         =        -----------------------
Member 2         =        -----------------------
State            =        -------------
Taxpayer         =        ---------------------

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

This letter responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests, under section 301.9100-1 and 301.9100-3 of the Income Tax Regulations, an
extension of time to (1) make timely election under section 1.1400Z2(d)-1(a)(2)(i) to be
certified 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 Date 2, as provided by section 1400Z-2(d) and section 1.1400Z2(d)-1(a) of the
Income Tax Regulations.

PLR-104682-23                               2

                                        FACTS

Based on the affidavits and additional information provided, Taxpayer has represented
the facts are as follows: Taxpayer is a limited liability company, organized under the
laws of State, taxed under Federal law as a partnership, and formed on Date 2. The
Taxpayer has two members: (1) Member 1, who owns Interest X; and (2) Member 2,
which owns Interest Y. Member 1 is also the authorized representative of Member 2,
whose members are not known. The Taxpayer’s manager is Manager and does not
hold a profits or capital interest in Taxpayer. According to Taxpayer’s amended and
restated operating agreement, Taxpayer was formed to invest qualified opportunity zone
property and operate as a QOF. Member 1 acquired his Interest X in Taxpayer by
contributing Amount 1 on Date 3. Member 2 acquired its Interest Y in Taxpayer by
contributing Amount 2, also on Date 3.

Firm is the tax return preparer for many entities related to Taxpayer. Taxpayer failed to
file its initial Form 1065, U.S. Return of Partnership Income (the “1065 Return”), which
was due on Date 4. Taxpayer represents that it failed to file its initial 1065 Return due
to a miscommunication between a member’s family office and Manager regarding who
was to inform Firm that Taxpayer was created and intended to be certified as a QOF.
Since neither the Manager nor the family office informed Firm of the Taxpayer’s
existence, Firm did not file a 1065 Return with an attached Form 8996, Qualified
Opportunity Fund. Firm also did not file an extension for Taxpayer on or before Date 4.
Taxpayer then engaged Firm to file this ruling request seeking an extension of time to
file Form 8996.

According to the affidavits and representations, Taxpayer and Firm were aware of the
requirement to file a Form 8996 for the Taxpayer to self-certify its QOF status and to be
treated as a QOF as of the month Taxpayer was formed.

Taxpayer represents that granting of the relief under section 301.9100-3 will not result in
a lower tax liability for the years affected by the election.

                                LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to
prescribe regulations for 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 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.

PLR-104682-23                               3

To self-certify as a QOF, a taxpayer must file Form 8996, Qualified Opportunity Fund,
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). The

information provided indicates that Taxpayer did not file its Form 8996 by the due date
of its Federal income tax return (including extensions) due to a miscommunication
between a member's family office, Manager, and Firm.

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 section 301.9100-1(b). According to section 301.9100-3(a), requests for
extensions of time for regulatory elections that do not meet the requirements of section
301.9100-2 (automatic extensions) must be made under the rules of section 301.9100-

3. Additionally, requests for relief subject to section 301.9100-3 will be granted when
the taxpayer provides evidence to establish that the taxpayer acted reasonably and in
good faith, and that the granting 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, failed to make the election, because after
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 the
election, 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;
  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.

PLR-104682-23                                4

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.

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,
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 section 1400Z-2 and
section 1.1400Z2(d)-1(a)(2)(i). The election must be made on a completed Form 8996
attached to the Taxpayer’s amended tax return or administrative-adjustment request (as
applicable).

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
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
section 1.1400Z2(a)-1(b)(34) or whether the taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be a QOF. Further, we also express
no opinion on whether any interest(s) owned by Taxpayer qualify as qualified
opportunity zone property, as defined in section 1400Z-2(d)(2), or whether such
interest(s) would be treated as a qualified opportunity zone business, as defined in
section 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

PLR-104682-23                                 5

may be applicable, or regarding the tax treatment of any conditions existing at the time
of, or effects resulting from, the instant transaction.

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.

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 the taxpayer and accompanied by a penalty of perjury statement executed
by 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,



                                       Erika C. Reigle
                                       Senior Technician Reviewer, Branch 8
                                       (Income Tax & Accounting)


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