Amended Form 8996 was treated as a timely QOF election

Plain-English summary

A partnership formed to invest in qualified opportunity zone property timely filed Form 1065 but omitted Form 8996. Neither the partnership representative nor the experienced CPA who prepared the return knew that Form 8996 had to be attached. The CPA discovered the omission a few days later and filed an amended return with the form before seeking relief. The IRS found reasonable reliance, good faith, and no prejudice to the government. It treated the Form 8996 attached to the amended return as timely filed and therefore recognized the self-certification election for that year, while expressing no view on whether the fund or its investments otherwise meet the opportunity-zone requirements.

Ruling snapshot

• Question: May the Form 8996 attached to the amended partnership return be treated as a timely qualified opportunity fund election?
• Outcome: approved, the amended Form 8996 is treated as timely filed
• 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: 202417001                                              Third Party Communication: None
 Release Date: 4/26/2024                                        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-100445-23
                                                                Date:
                                                                February 01, 2024



                                                   LEGEND

                      Taxpayer       =    ------------------------------------------------------
                      State          =    ----------
                      X              =    ---
                      CPA            =    ---------------------
                      Date 1         =    ---------------------------
                      Date 2         =    ---------------------------
                      Date 3         =    ---------------------------
                      Date 4         =    --------------------------
                      Date 5         =    ---------------------------
                      Year 1         =    -------




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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of 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
PLR-100445-23                                2

year ended Date 3, effective as of Date 2, as provided by section 1400Z-2(d) and
section 1.1400Z2(d)-1(a).

                                         FACTS

According to the affidavits and information provided, 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 2. Taxpayer is classified as a partnership for U.S. federal
income tax purposes and was formed for the purpose of investing in qualified
opportunity zone property and serving as a QOF.

Taxpayer engaged CPA to prepare the Year 1 Form 1065, U.S. Return of Partnership
Income. Neither Taxpayer’s partner representative nor CPA were aware of the
necessity to include Form 8996, Qualified Opportunity Fund, with Form 1065. CPA is a
licensed certified public accountant and has over X years of experience in public and
private accounting. CPA timely filed the Year 1 Form 1065 on Date 4, an extended due
date, but did not include Form 8996. As a result, Taxpayer failed to file its Form 8996 by
the extended due date, and consequently, the election to self-certify as a QOF on the
Form 8996 was not timely made.

A few days later, on Date 5, CPA discovered that Taxpayer’s Year 1 Form 8996 had not
been timely filed. On Date 1, CPA filed an amended Year 1 Form 1065 and
accompanying Form 8996. Taxpayer then filed this request for relief.

                                  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 CPA did not file Taxpayer’s Form 8996 because neither Taxpayer’s
partner representative nor CPA were aware of the requirement.

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-100445-23                                 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.

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).

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
PLR-100445-23                                  4

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. A partner representative of
Taxpayer relied on CPA to prepare Taxpayer’s Year 1 tax returns. However, neither
were aware of the requirement to attach the Form 8996 to the timely-filed Form 1065.
Consequently, the Form 8996 attached to Taxpayer’s amended Year 1 Form 1065, filed
Date 1, is considered timely filed, and Taxpayer has thereby made the election under
sections 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 return.

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.
PLR-100445-23                                 5

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.

                                           Sincerely,



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



CC:    -----------------