Opportunity fund received more time to file its self-certification

Plain-English summary

A limited liability company intended to operate as a qualified opportunity fund and received capital-gain contributions during its first year. Its partnership representative believed no partnership return was required because the company had no other economic activity, so the company did not file Form 1065 or attach Form 8996 to self-certify as a fund. An accounting firm discovered the omission after the following year. The IRS found that the company acted reasonably and in good faith and granted 60 days to file Form 8996 with its first-year return. The ruling did not extend the deadline for filing Form 1065 and did not decide whether the company or its investments otherwise qualified under the opportunity-zone rules.

Ruling snapshot

• Question: Could the company receive additional time to file Form 8996 and self-certify as a qualified opportunity fund for its first year?
• 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: 202352013                                             Third Party Communication: None
Release Date: 12/29/2023                                      Date of Communication: Not Applicable
Index Number: 9100.00-00
                                                              Person To Contact:
---------------------------                                   ----------------------, -----------------
------------------------------                                Telephone Number:
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---------------------------------------------                 Refer Reply To:
-------------------------                                     CC:ITA:B05
                                                              PLR-108857-23
                                                              Date:
                                                              October 04, 2023




       TY: -------

Legend

Taxpayer                   =    -----------------------------------------------------
Member A                   =    ---------------------
Member B                   =    -------------------
QOZB                       =    --------------------------
Accounting Firm            =    ---------------------------
State                      =    -------------
Date 1                     =    --------------------------
Date 2                     =    --------------------
Date 3                     =    ----------------
Date 4                          -----------------------
Date 5                     =    --------------------------
Month 1                    =    ---------
Year 1                     =    -------
Year 2                     =    -------
N1                         =    ---
N2                         =    ---
N3                         =    ---
N4                         =    ----------
N5                         =    ---------
N6                         =    -------------

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

This responds to the request by Taxpayer, dated Date 1 for relief under § 301.9100-3 of
the Procedure and Administration Regulations to file Form 8996, Qualified Opportunity
Fund. Specifically, Taxpayer requests that the Internal Revenue Service (Service) grant
to Taxpayer an extension of time to make an election under § 1400Z-2 of the Internal

PLR-108857-23                                 2

Revenue Code (Code) and § 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations to self-
certify as a Qualified Opportunity Fund (QOF), effective as of Date 2.

                                         FACTS

The information and affidavits submitted reflect the following facts.

Taxpayer is a limited liability company which was formed under the laws of State on
Date 3. Taxpayer uses the cash method of accounting. Member A, who is the
partnership representative of Taxpayer, holds a N1% interest in Taxpayer and Member
B holds a N2% interest in Taxpayer. Taxpayer owns a N3% interest in QOZB, a
qualified opportunity zone business, and Member A and Member B own the remaining
interests.

The recitals and the provision in section N4 of Taxpayer’s Limited Liability Company
Agreement indicate that Taxpayer intended to meet the legal requirements to be a QOF.
For example, one of the recitals in the Limited Liability Company Agreement states that
Taxpayer’s members intended to cause Taxpayer "to acquire a [qualified opportunity
zone partnership interest]; . . . state the business purpose of [Taxpayer] in connection
with § 1400Z-2(d) of the Code; and . . . provide for the management and the conduct of
the business and the affairs of . . ." Taxpayer and its members’ relative rights and
obligations.

Member A and Member B first contributed $N5 in what would be eligible capital gains to
Taxpayer during Month 1 of Year 1. Apart from receiving those contributions, Taxpayer
engaged in no economic activity and had no income, deductions, or credits in Year 1.
Subsequently, during Year 2 members contributed additional eligible gains totaling $N6
to Taxpayer. Taxpayer used the funds contributed to it to acquire QOZB, which
operated and improved a retail business in a qualified opportunity zone.

Member A, as the partnership representative, believed that because Taxpayer had no
economic activity during Year 1, aside from receiving contributions of capital gain from
investors, no tax return was required to be filed with the Service. As a result, neither
Taxpayer nor either of its members engaged anyone to prepare a Form 1065, U.S.
Partnership Return of Income, for Year 1. Consequently, Taxpayer made no self-
certification for Year 1 by including a completed Form 8996 with a filed Form 1065 for
that taxable year. It was only after the close of Year 2, that Accounting Firm became
aware that Taxpayer had received contributions in Year 1 as well as in Year 2 and
alerted Member A and Member B that Taxpayer should have filed a Form 1065 for Year
1 and made a self-certification to be a QOF.

                                 LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations to
carry out the statute’s purposes, including rules for the certification of QOFs. Section

PLR-108857-23                                 3

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 filed return in such form and
manner as may be prescribed by the Commissioner of Internal Revenue in the 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
tax return (including extensions).

Because § 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)
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 a request for extensions of time for regulatory elections, other than
automatic extensions covered in § 301.9100-2, will be granted if 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 § 301.9100-3(b) of the Procedure and Administration Regulations, a taxpayer is
deemed to have acted reasonably and in good faith if, among other circumstances not
relevant here, the taxpayer requests relief before the failure to make the regulatory
election is discovered by the Service, or although 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 an election.

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).

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 will not prejudice the interests of the Government. Accordingly, based solely on
the facts and information submitted, and the representations made in the ruling request,

PLR-108857-23                                 4

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), effective Date 2. The election must be made on a completed
Form 8996 attached to the Taxpayer’s tax return for Year 1. This letter ruling grants an
extension of time to file a Form 8996. This letter ruling does not grant an extension of
time to file Taxpayer’s Form 1065.

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 referred to 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 Taxpayer meets the
requirements under § 1400Z-2 of the Code and the regulations thereunder to be a QOF.
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.

The rulings contained in this letter are based upon information and representations
submitted by 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,



                                          Sue-Jean Kim
                                          Senior Technician Reviewer, Branch 5
                                          Office of Associate Chief Counsel
                                          (Income Tax & Accounting)

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