Late opportunity-fund self-certification was treated as timely

Plain-English summary

Members without tax experience formed a partnership-taxed limited liability company to operate as a qualified opportunity fund. They discussed compliance work with a tax accountant but mistakenly believed the first Form 1065 and Form 8996 were due later than their actual deadline. The company requested relief before the IRS discovered the missed election, then filed the return and Form 8996 while the ruling request was pending. The IRS found that the company acted reasonably and in good faith and that relief would not prejudice the government. It treated the filed Form 8996 as timely, without deciding whether the company or its investments met the substantive opportunity-zone requirements.

Ruling snapshot

• Question: Could the company's already-filed Form 8996 be treated as timely for its qualified-opportunity-fund election?
• Outcome: approved, Form 8996 treated as timely
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i), 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                         Department of the Treasury
                                                                  Washington, DC 20224

 Number: 202412006                                                Third Party Communication: None
 Release Date: 3/22/2024                                          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-113493-23
                                                                  Date:
                                                                  December 28, 2023


Legend


 Taxpayer                    =      ----------------------------------------------------------
 Members                     =      ------------------------------------------------------------------------------
 Tax Accountant              =      --------------------------
 Year 1                      =      -------
 State X                     =      -------------
 Accounting Firm             =      -------------------------
 Date 1                      =      -----------------------
 Date 2                      =      ---------------------
 Date 3                      =      -------------------
 Date 4                      =      ----------------
 Date 5                      =      ----------------------


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

This ruling responds to the Taxpayer’s request dated Date 4. Specifically, the taxpayer
requests relief under sections 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations, for its Form 8996, Qualified Opportunity Fund, filed on Date
5, to be treated as timely for purposes of the election for Taxpayer: (1) to self-certify as
a qualified opportunity fund (“QOF”) as defined in section 1400Z-2 of the Internal
Revenue Code (Code); and (2) to be treated as a QOF, effective as of the month
Taxpayer was formed, as provided under section 1400Z-2 of the Code and section
1.1400Z2(d)-1(a) of the Income Tax Regulations.

PLR-113493-23                                2

                                         FACTS

According to the facts and representations provided, Taxpayer was organized by
Members as a limited liability company on Date 1 under the laws of State X and is
classified as a partnership for U.S. federal income tax purposes. As indicated in
Taxpayer’s company agreement, Taxpayer was organized for the purpose of being a
QOF and to invest in qualified opportunity zone property.

As Members lacked tax experience, before Taxpayer was organized, they contacted
Tax Accountant about performing tax compliance work for a QOF and to discuss the
various tax aspects of forming a QOF. Members agreed to contact Tax Accountant
again once the QOF was organized and indicated their intention to engage Tax
Accountant to prepare and file the QOF’s Federal income tax return for Year 1. The
filing deadline for the tax return was not discussed.

Once Taxpayer was formed, Members mistakenly believed that the filing deadline for
Taxpayer’s Year 1 Form 1065, U.S. Return of Partnership Income, and accompanying
Form 8996 was Date 3. As such, Members contacted Tax Accountant to prepare
Taxpayer’s Form 7004, Application for Automatic Extension of Time To File Certain
Business Income Tax, Information, and Other Returns, on Date 2, after the due date.
Taxpayer filed its Form 1065 and accompanying Form 8996 on Date 5 after submitting
this request for a private letter ruling.


                                  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 that the rules for an entity to self-certify as a
QOF. Section 1.1400Z2(a)-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 the taxpayer did not file its Form 8996 by the due date of its income tax
return (including extensions) due to a mistaken belief regarding the filing deadline.

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).

PLR-113493-23                                 3


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 the grant of relief will not
prejudice the interests of the Government.

Section 301.9100-3(b)(1) 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

(v) reasonably relied on a qualified tax professional, and the professional failed to make,
or advise the taxpayer to make, the election.

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.

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.

PLR-113493-23                                  4

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 § 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 the 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 5, is considered timely filed.

This ruling is based upon facts and representations submitted by the 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 the 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 also express no
opinion whether any interest owned in any entity by the Taxpayer qualifies as qualified
opportunity zone property or whether such entity would be treated as a qualified
opportunity zone business. 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

PLR-113493-23                                5

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,


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


Cc:   ---------------------------------
      -------------------------