Amended qualified opportunity fund election was treated as timely

Plain-English summary

A partnership was formed to invest in qualified opportunity zone property and intended to be a qualified opportunity fund from its first month. Its accountant agreed to prepare the required filings but did not know that Form 8996 had to accompany the partnership return, so the form was omitted. The partnership discovered the problem after one of its members received IRS correspondence, hired a second accountant, requested relief, and filed an amended Form 1065 with Form 8996. The IRS found reasonable reliance on a qualified tax professional and no prejudice to the government. It treated the Form 8996 attached to the amended return as timely and recognized the first-year self-certification election, without deciding whether the partnership or its investments otherwise met the opportunity-zone requirements.

Ruling snapshot

• Question: Could Form 8996 filed with an amended partnership return be treated as a timely qualified opportunity fund election?
• Outcome: approved
• 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: 202402001
                                                           Person To Contact:
Release Date: 1/12/2024
                                                           ---------------------------, ID No. ---------------
Index Number: 9100.00-00, 1400Z.02-00                      -----------------
                                                           Telephone Number:
-------------------------------                            --------------------
---------------------                                      Refer Reply To:
------------------------------                             CC:ITA:B08
                                                           PLR-105867-23
                                                           Date:
Attn: ----------------------                               October 16, 2023



VIA FAX



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

Month 1                        =   -------------------------

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

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

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

Year 1                         =   ---------------------------------------------------------------------

Year 2                         =   -------

State Z                        =   -------------

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

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

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

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

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

PLR-105867-23                                        2

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

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

    CPA 1                       =   -------------------------------------------------

    CPA 2                       =   ------------------



Dear ----- ------------------

This letter responds to Taxpayer's request for a letter ruling dated Date 2. Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-31 for an extension of time to file
Form 8996, Qualified Opportunity Fund, to self-certify as a qualified opportunity fund, as
defined in section 1400Z-2(d) (QOF), effective as of Month 1, the first month in which
Taxpayer intended to be a QOF.

                                                FACTS

According to the information and representations provided, Taxpayer, a limited liability
company classified as a partnership for federal tax purposes, was formed in Month 1 in
State Z, for the purposes of qualifying as a QOF and investing in qualified opportunity
zone property. As of Date 1, the last day of Year 1, Taxpayer represents that it had
seven members, Member A, Member B, Member C, Member D, Member E, Member F,
and Member G.

Taxpayer represents that it intended to elect to be a QOF beginning in Month 1, the first
month of Year 1. Taxpayer represents that it relied on CPA 1 to notify it of the
requirement to file the appropriate form with the Internal Revenue Service (IRS) with its
tax return for Year 1 to cause the Taxpayer to be treated as a QOF. Taxpayer
represents that it had previously engaged CPA 1 to prepare federal income tax returns
on behalf of other companies as well as to answer questions related to federal income
tax matters. However, Taxpayer represents that CPA 1 did not file a Form 8996 with
Taxpayer’s Form 1065 for Year 1.

CPA 1 represents that Taxpayer requested that it prepare the appropriate forms for
filing with the IRS to cause Taxpayer to be treated as a QOF from the time of its
formation, and that CPA 1 agreed to undertake the requested preparation. CPA 1
further represents that it was unaware that filing Form 8996 was required to make the
election to self-certify as a QOF.


1
 Unless otherwise specified, all “section” references are to sections of the Internal Revenue Code (Code)
and all “§” references to sections of the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).

PLR-105867-23                                  3

Taxpayer represents that in Year 2 it discovered its failure to file Form 8996 with its tax
return for Year 1 after one of its members received correspondence from the IRS
related to the member’s investment in Taxpayer. Taxpayer represents that it
subsequently engaged CPA 2 to file this private letter ruling request which was
submitted on Date 2. Taxpayer then filed an amended Form 1065 for Year 1 on Date 3
and included Form 8996 to self-certify as a QOF as of Month 1.

Taxpayer further represents that the tax liabilities of Taxpayer and its investors would
not be lower in the aggregate for Year 1 and subsequent taxable years affected by the
election than if the election had been timely made (taking into account the time value of
money).

                                   LAW AND ANALYSIS

Section 1400Z-2(e)(4) directs the Secretary to prescribe such regulations as may be
necessary to carry out the purposes of section 1400Z-2, including rules for the
certification of QOFs. Section 1.1400Z2(d)-1(a)(2)(i) of the regulations 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. The Form 8996 Instructions published pursuant to
these regulations specify that to self-certify as a QOF, a taxpayer must file Form 8996
with its tax return for the year to which the certification applies by the due date of the tax
return (including extensions).

Section 301.9100-3(a) of the regulations 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) of the regulations 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

PLR-105867-23                                 4

       (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

       (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 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 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).

                                      CONCLUSION

The information and representations provided indicates that Taxpayer did not file its
Form 8996 by the due date of its income tax return for Year 1 due to Taxpayer’s
reasonable reliance on CPA 1 and CPA 1’s failure to include the Form 8996 with
Taxpayer’s Form 1065. Based on the information provided, including affidavits and
representations under penalties of perjury, we conclude that Taxpayer has acted
reasonably and in good faith, and that granting a reasonable extension of time for
Taxpayer to file Form 8996 will not prejudice the interests of the Government.
Consequently, the Form 8996 attached to Taxpayer’s amended Form 1065 for Year 1,
filed on Date 3, 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 amended Form 1065.

PLR-105867-23                                 5

                                         CAVEATS

The granting of an extension of time in this ruling letter is not a determination that
Taxpayer is otherwise eligible to self-certify as a QOF. See § 301.9100-1(a).

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.

Except as expressly provided herein, no opinion is either 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 in Taxpayer are qualifying investments as
defined in § 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be treated as 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 section 1400Z-2(d)(2), or
whether such entity 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 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. Taxpayers that have previously filed a return or administrative adjustment
requests attaching Form 8996 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 previous filing(s).

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.

PLR-105867-23                                            6

Pursuant to the Form 2848, Power of Attorney and Declaration of Representative, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.


                                                             Sincerely,




                                                             Frank W. Dunham III
                                                             Senior Counsel, Branch 8
                                                             Office of Chief Counsel
                                                             (Income Tax & Accounting)


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