Partnership received 60 days to make a late qualified opportunity fund election

Plain-English summary

A partnership was formed to invest in a qualified opportunity zone business and serve as a qualified opportunity fund. Its accounting firm mistakenly believed the entity was a corporation, so it did not timely file Form 1065 with Form 8996 to self-certify the partnership as a qualified opportunity fund. The IRS found that the partnership acted reasonably and in good faith because it relied on a qualified tax professional, and that granting relief would not prejudice the government. It gave the partnership 60 days from the ruling date to file Form 8996 with its tax return and make the late election. The relief extended only the time to file Form 8996, not the time to file Form 1065, and the IRS did not decide whether the partnership or its investments otherwise met the opportunity-zone requirements.

Ruling snapshot

• Question: Could the partnership receive extra time to file Form 8996 and self-certify as a qualified opportunity fund?
• 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: 202402009                                              Third Party Communication: None
 Release Date: 1/12/2024                                        Date of Communication: Not Applicable
 Index Number: 1400Z.02-00, 9100.00-00
                                                                Person To Contact:
 ----------------                                               ---------------------, ID No. -----------------
 -----------------------------                                  Telephone Number:
 ---------------------------------------------                  --------------------
 -----------------------                                        Refer Reply To:
                                                                CC:ITA:B05
                                                                PLR-116189-23
                                                                Date:
                                                                October 11, 2023




                                                   LEGEND

                      Taxpayer = ----------------------------------------
                      State    = ------

                      Firm           =    ----------------------
                      Entity 1       =    ----------------
                      Entity 2       =    ------------------
                      Date 1         =    --------------------
                      Date 2         =    --------------------------
                      Date 3         =    ---------------------
                      Date 4         =    ----------------
                      Date 5         =    ------------------
                      Date 6         =    ---------------------
                      Year 1         =    -------
                      Year 2         =    -------



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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically
the Taxpayer requests an extension of the time under sections 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations to (1) make a timely
election under section 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations to be
certified as a qualified opportunity fund (QOF) as defined in section 1400Z-2(d) of the
Internal Revenue Code, and (2) for Taxpayer to be treated as a QOF, effective for its
taxable year ending Date 2, effective date of Date 4, as provided by section 1400Z-2(d)
and section 1.1400Z2(d)-1(a) of the Income Tax Regulations.

PLR-116189-23                                2

                                         FACTS

According to the affidavits and additional information provided to us, Taxpayer has
represented that the facts are as follows. Taxpayer is a limited liability company
organized under the laws of State and was formed on Date 4. Taxpayer is classified as
a partnership for Federal income tax purposes and was formed on Date 4 for the
purpose of investing in a qualified opportunity zone business and serving as a QOF.

The day after Taxpayer was formed, Entity 1 and Entity 2 made separate contributions
to Taxpayer. As of Date 2, none of the contributed funds to the Taxpayer had been
invested in a qualified opportunity zone business.

Entity 1 and Entity 2 have historically employed Firm as their accounting firm. In Year 1,
Taxpayer notified Firm that the Taxpayer had been formed and capitalized, and that
additional filing documentation would be provided by Date 5. Due to the reference to
Date 5, Firm mistakenly assumed that the Taxpayer was classified as a corporation
instead of a partnership. On Date 6, Firm became aware of the Taxpayer’s correct tax
classification as a partnership.

As a result of Firm’s mistaken assumption, Taxpayer missed its filing deadline of Date 3.
Firm did not file a Year 1 Form 1065, U.S. Return of Partnership Income, for the
Taxpayer, which should have included Form 8996 to certify Taxpayer’s status as a
QOF. Taxpayer, therefore, did not make a valid election to certify as a QOF.

Taxpayer has not yet filed its Form 1065 and attached Form 8996 for Year 1.

                                  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 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 Internal Revenue Service
forms or instructions, or in publications or guidance published in the Internal Revenue
Bulletin.

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 tax return (including extensions). The information provided
indicates that Firm did not file Taxpayer’s Form 8996 due to an administrative oversight
regard the entity classification between Firm and Taxpayer representatives.

PLR-116189-23                                 3

Because section 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 section
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 extensions covered in section 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 provides evidence that 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 section 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)(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).

PLR-116189-23                                  4

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. Taxpayer reasonably relied
on a qualified tax professional and the tax professional failed to make, or advise the
taxpayer to make, the election. 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 tax return. 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.

This ruling is based upon facts and representations 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.
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. 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 representatives.

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

PLR-116189-23                                          5

attaching a statement to their return that provides the date and control number of the
letter ruling.

                                                   Sincerely,



                                                   Amy J. Pfalzgraf
                                                   Branch Chief, Branch 5
                                                   Office of Associate Chief Counsel
                                                   (Income Tax and Accounting)



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