Partnership received more time to self-certify as an Opportunity Fund

Plain-English summary

A partnership formed to operate as a Qualified Opportunity Fund relied on an accounting firm to file its initial partnership return and Form 8996. The firm obtained an extension but failed to complete and file the return by the extended deadline. The error came to light after a member received a notice indicating that the partnership was not associated with a Qualified Opportunity Fund. The IRS found that the partnership acted reasonably and in good faith and granted 60 days to file Form 8996 with its first-year return. The ruling extended only the Form 8996 election deadline, not the deadline for filing Form 1065, and did not decide whether the partnership or its investments otherwise qualified.

Ruling snapshot

• Question: Could the partnership receive more time to file Form 8996 and self-certify as a Qualified Opportunity Fund after its accounting firm missed the extended return deadline?
• 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: 202422003                                             [Third Party Communication:
 Release Date: 5/31/2024                                       Date of Communication: Month DD, YYYY]
 Index Number: 9100.00-00, 1400Z.02-00
                                                               Person To Contact:
 ---------------------------------                             --------------------------, ID No. ----------------
 ------------------------------------------                    -----------------
 ----------------------------                                  Telephone Number:
 --------------------------------                              --------------------
                                                               Refer Reply To:
                                                               CC:ITA:B05
                                                               PLR-117018-23
                                                               Date:
                                                               February 28, 2024



Legend:
 Taxpayer                    = -----------------------------------------------------
                               -----------------
 Date 1                      = ----------------------
 Date 2                      = ------------------
 Date 3                      = --------------------------
 Date 4                      = ---------------------------
 State                       = ----------------
 Accounting Firm             = ------------------------------
 Accounting Firm 2           = --------------------
 Year 1                      = -------
 Year 2                      = -------
 Manager                     = --------------------


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

This ruling responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations, granting an extension of time to make a timely election
under § 1.1400Z-2(a)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a
Qualified Opportunity Fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue
Code (Code).

This letter is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-
21 I.R.B. 859. A paper copy will not be mailed to Taxpayer.
PLR-117018-23                                2

                                         FACTS

Taxpayer represents the facts as follows:

Taxpayer is a limited liability company organized under the laws of State on Date 2.
Taxpayer is treated as a partnership for Federal income tax purposes. Taxpayer uses
the accrual method of accounting and the calendar year as its taxable year.

Taxpayer was formed for the purpose of investing in real and personal property and
operating as a QOF as defined in § 1400Z-2(d)(1) on Date 2. A second operating
agreement was executed on Date 3 to reflect the entity’s name change and additional
members. The revised operating agreement also clearly states that the Taxpayer was
formed for the purpose of operating as a QOF. Shortly after the Taxpayer was formed,
all three investors made capital contributions to the Taxpayer, which were intended to
be qualifying investments under § 1400Z-2 and the regulations thereunder.

Taxpayer engaged Accounting Firm to prepare and file its necessary tax filings for Year
1, including its partnership return and its Form 8996, Qualified Opportunity Fund.
Accounting Firm had previously provided services to Taxpayer’s related affiliates in prior
tax periods. Accounting Firm was aware of Taxpayer’s intent to be treated as a QOF.

Accounting Firm timely filed Form 7004, Application for Automatic Extension of Time for
the Taxpayer’s initial period in Year 1, extending the filing deadline to Date 4.
Accounting Firm began preparing the return prior but failed to complete and file the
return by Date 4 due to administrative error.

In Year 2, a member of Taxpayer received a notice that Taxpayer and its EIN as
included on the member’s Form 8997 were not associated with a certain QOF.
Taxpayer’s Manager reached out to Accounting Firm for assistance.

Upon review, Accounting Firm discovered that it had not completed and filed Taxpayer’s
Year 1 partnership return. Once it became clear that the return had not been filed,
Taxpayer discussed the issue with Accounting Firm and sought assistance from
Accounting Firm 2. Based on these discussions, Taxpayer requested this 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 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
PLR-117018-23                                 3

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 Taxpayer did not file its Form 8996 by the due date of its income tax
return due to the Accounting Firm’s failure to timely file Taxpayer’s Year 1 return.

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 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 § 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 § 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, § 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.
PLR-117018-23                                 4

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
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 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,
we grant Taxpayer an extension of 60 days from the date of this letter ruling to file a
Form 8996 for Year 1 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 for Year 1. This letter ruling
grants an extension of time to file a Form 8996 for Year 1. This letter ruling does not
grant an extension of time to file Taxpayer’s Form 1065 for Year 1.

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
§ 1.1400Z2 (a)–1(b)(34) or whether Taxpayer meets the requirements under § 1400Z-
2 and the regulations thereunder to be a QOF.

Further, we 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
PLR-117018-23                                  5

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.

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 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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being faxed to your authorized representative.


                                                   Sincerely,



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


 cc:   --------------------
       -------------------