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

Plain-English summary

A partnership was formed to operate as a Qualified Opportunity Fund but missed the deadline to file its first Form 1065 and accompanying Form 8996. Its managers knew that Form 8996 was required but did not understand that the self-certification had to accompany a timely return, and they also failed to request an extension for the partnership return. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file an amended return with Form 8996 and make the self-certification effective from the partnership's intended first month as a fund. The ruling did not decide whether the partnership, its investments, or related entities otherwise met the Qualified Opportunity Zone requirements.

Ruling snapshot

• Question: Could the partnership receive more time to file Form 8996 and self-certify as a Qualified Opportunity Fund from its intended first month?
• 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: 202422005                                               Third Party Communication: None
Release Date: 5/31/2024                                         Date of Communication: Not Applicable
Index Number: 9100.00-00, 1400Z.02-00
                                                                Person To Contact:
----------------------                                          ------------------------, ID No. -----------------
------------------------------                                  Telephone Number:
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-------------------------                                       Refer Reply To:
--------------                                                  CC:ITA:B08
--------------------------------------                          PLR-117051-23
                                                                Date:
                                                                February 23, 2024




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

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

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

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

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

Date 4                        =        --------------------------

Date 5                        =        -------------------

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

Year 2                        =        -------

State Z                       =        ------

Tax Director                  =        ----------------------------

Operating Agreement =                  ----------------------------------------------------------------------------
                                       ---------------------------------------------------

Tax Advisor                   =        -----------------------------

Firm                          =        ----------------------
PLR-117051-23                                       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 of the Procedure and
Administration Regulations, for an extension of time to file Form 8996, Qualified
Opportunity Fund, to self-certify as a qualified opportunity fund (QOF), as defined in
section 1400Z-2(d) of the Internal Revenue Code, 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 on Date 4 in
State Z. Taxpayer represents that, pursuant to the terms of the Operating Agreement,
Taxpayer was formed for the purposes of operating as a QOF and investing in qualified
opportunity zone property within the meaning of section 1400Z-2(d).

Taxpayer represents that it intended to elect to be a QOF beginning in Month 1, the first
month of Year 1. Taxpayer represents that Taxpayer’s internal team of tax
professionals, including Tax Director (collectively, Taxpayer’s Managers) were aware of
the requirement to file Form 8996 for Taxpayer to self-certify as a QOF. However,
Taxpayer represents that Taxpayer’s Managers were not experienced with Form 8996,
and were not aware of the need to file Form 8996’s QOF self-certification with a timely-
filed federal income tax return.

Taxpayer represents that Taxpayer engaged Firm for the purpose of preparing all of
Taxpayer’s U.S. federal income tax and information returns for Year 1, including Forms
1065 and 8996. Due to administrative oversight on the part of Taxpayer’s Managers,
caused by the Tax Managers’ lack of experience filing Form 7004, Application for
Automatic Extension of Time To File Certain Business Income Tax, Information, and
Other Returns, in connection with federal partnership tax returns, Taxpayer’s Managers
failed to timely request an automatic extension of Taxpayer’s due date for its Year 1 tax
return on or before Date 3. As a result, Taxpayer failed to file its Year 1 Form 1065 and
accompanying Form 8996 by Date 3.

Taxpayer represents that on or about Date 5, Director spoke with Tax Advisor, a Partner
at Firm whose responsibilities include overseeing Firm’s engagement with Taxpayer
and its investors, and discovered for the first time that Taxpayer could not file a late
Form 1065 and Form 8996 for Year 1 to self-certify as a QOF after Date 3 (if no request
for an automatic extension of time to file Taxpayer’s federal income tax return had been
made by Date 3). Taxpayer represents that Taxpayer’s Managers mistakenly believed
that Taxpayer had a later filing deadline for Form 7004.


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-117051-23                                3

Tax Advisor represents that Taxpayer became aware of its failure to timely file Forms
8996 and 1065 while on a call with Tax Director on or about Date 5. Tax Advisor
represents that shortly after becoming aware of the error in failing to attach Form 8996
to Taxpayer’s timely-filed return, Tax Advisor informed Tax Director of the
consequences of the mistake and advised Taxpayer to request an extension of time
under § 301.9100-1 and § 301.9100-3. Tax Advisor represents that, thereafter,
Taxpayer retained Firm for the purpose of requesting an extension to file Forms 8996
and 1065 through this private letter ruling request.

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 Income Tax 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 Procedure and Administration 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) 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;
PLR-117051-23                                 4

       (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, § 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. 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

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,
Taxpayer is granted 60 days from the date of this letter to file an amended Year 1 Form
1065 and accompanying Form 8996 to make an election under section 1400Z-2 and
section 1.1400Z2(d)-1(a)(2)(i) self-certifying the Taxpayer as a QOF as of Month 1.

                                         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.
PLR-117051-23                                           5

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.

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 representative.


                                                            Sincerely,



                                                            Shareen S. Pflanz
                                                            Branch Chief, Branch 8
                                                            Office of Chief Counsel
                                                            (Income Tax & Accounting)

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