Filed Form 8996 treated as timely for first QOF year

Plain-English summary

A six-member partnership was formed to invest in qualified opportunity zone property. Its tax group incorrectly concluded that no first-year Form 1065 was required and did not know that the partnership needed to file that return solely to attach Form 8996 and self-certify as a qualified opportunity fund. Another adviser questioned the missing Schedule K-1, leading the tax group to discover the filing error. The partnership promptly filed Form 1065 with Form 8996 and requested relief. The IRS found reasonable reliance and good faith and treated the filed Form 8996 as timely from the partnership's formation month, while expressly declining to decide whether Form 1065 itself was timely.

Ruling snapshot

• Question: May the partnership's filed Form 8996 be treated as timely for its first qualified opportunity fund year?
• Outcome: Approved, the filed Form 8996 is treated as timely
• 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: 202435014 Third Party Communication: None
Release Date: 8/30/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1400Z.02-00
Person To Contact:
------------------, ID No. -----------------
Telephone Number:
--------------------

                                                                Refer Reply To:

                                                                CC:ITA:B04

                                                                PLR-124848-23

                                                                Date:
                                                                June 03, 2024

Re: --------------------------

                                                  LEGEND

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

State = ------

Managing Member = -----------------------------------

-------------------------------------------------------------------------------

Member A = --------------------

Member B = ------------------------

Tax Group = ------------------------------

Advisor = ---------------

PLR-124848-23 2

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

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

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

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

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

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

Year 1 = ----- --

Year 2 = -------

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

This letter responds to Taxpayer’s request, dated Date 5, for a letter ruling pursuant to
§§ 301.9100-1 and 301.9100-3,1 Specifically, Taxpayer requests an extension of time to
make a regulatory election to (1) self-certify Taxpayer as a Qualified Opportunity Fund
(QOF) as defined in § 1400Z-2(d); and (2) treat Taxpayer as a QOF, effective as of the
month Taxpayer was formed, as provided under § 1400Z-2 and § 1.1400Z2(d)-1(a).

                                                FACTS

According to the facts and representations provided, Taxpayer was organized as a
limited liability company under the laws of State on Date 1 and is treated as a
partnership for federal income tax purposes. Taxpayer’s annual accounting period is the
calendar year, and it uses the accrual method of accounting. Taxpayer was formed for
the purpose of investing in qualified opportunity zone property as such term is defined in
§ 1400Z-2(d)(2).

Taxpayer has six members. On Date 2, Taxpayer was capitalized with initial
contributions from Member A, Member B and three other members. Managing Member
was responsible for timely filing Taxpayer’s federal income tax returns. Managing
Member did not have expertise in federal tax laws and relied on Tax Group to identify
and make necessary tax filings.

1 Unless otherwise specified, all section references are to sections of the Internal Revenue Code of 1986,

as amended, Title 26 U.S.C., or the Income Tax Regulations or Procedure and Administration
Regulations, Title 26 C.F.R. pt. 1 or Title 26 C.F.R. pt. 301.

PLR-124848-23 3

Although Tax Group consisted of qualified tax professionals and regularly prepares
federal tax returns and provides other services for Taxpayer, Tax Group had not
previously worked with a QOF. Tax Group determined in early Year 2 that Taxpayer did
not have an obligation to file a Form 1065, U.S. Return of Partnership Income, for Year

1. Tax Group was unaware that a Form 1065 must be filed for Year 1 solely for the
   purpose of filing a Form 8996, Qualified Opportunity Fund, to self-certify as a QOF as of
   Month 1 of Year 1 and concluded, erroneously, that a Form 8996 could be included with
   Taxpayer’s Form 1065 for Year 2.

Member A engaged Advisor to prepare a Form 1040, U.S. Individual Income Tax
Return, for Year 1. On Date 3, when reviewing Member A’s investments for Year 1,
Advisor noted that a Schedule K-1 was not issued to Member A for the initial
contribution to Taxpayer on Date 2. Advisor raised this issue with Tax Group. After
discussions with Advisor, Tax Group determined that a Form 1065 should have been
filed for Year 1. Due to Tax Group’s misunderstanding as to when the Form 1065
should have been filed, Tax Group did not request an extension of time to file
Taxpayer’s Form 1065 for Year 1.

On Date 4, shortly after learning that a Form 1065 for Year 1 should have been filed,
Taxpayer filed a Form 1065 for Year 1 and included a Form 8996 with a statement that
Taxpayer was in the process of seeking an extension of time to file Form 8996 to elect
to be treated as a QOF, effective as of the month Taxpayer was formed. Taxpayer
thereafter filed this request for an extension of time.

                              LAW AND ANALYSIS

Section 1.1400Z2(d)-1(a)(2)(i) 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 (Commissioner) in the forms or instructions, or in
publications or guidance of the Internal Revenue Service (Service) published in the
Internal Revenue Bulletin.

To self-certify as a QOF, a taxpayer must file Form 8996 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 (including extensions) as
Taxpayer was unaware that of the requirement to file the Form 8996 for Year 1.

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 changes 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 granting relief will not prejudice the
interests of the Government.

PLR-124848-23 4

Section 301.9100-1(b) defines the term “regulatory election” as including any election
whose due date is prescribed by a regulation published in the Federal Register. Section
1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF and to
self-certify as a QOF. Accordingly, these elections are regulatory elections, as defined
in § 301.9100-1(b).

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.

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. Section 301.9100-3(c)(1)(i)
provides that the interests of the Government will be prejudiced if granting relief would
result in a taxpayer having a lower tax liability in the aggregate for all taxable years

PLR-124848-23 5

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 solely on the 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 has satisfied the
requirements of the regulations for the granting of relief, and the Form 8996 filed on
Date 4 shall be considered timely filed. Accordingly, Taxpayer has elected to self-certify
as a QOF under § 1400Z-2 and § 1.1400Z2(d)-1(a)(2)(i) as of Month 1 of Year 1.
Taxpayer should submit a copy of this letter ruling to the IRS Service Center where
Taxpayer files its income tax returns, together with a cover letter requesting that the
Service Center associate this letter ruling with Taxpayer’s Year 1 Form 1065.

                                    CAVEATS

This ruling is based upon the representations made and information 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. As part of an examination process, the Service may verify the
information, representations and other data submitted.

This ruling addresses the granting of relief under § 301.9100-3 as applied to the election
to self-certify the Taxpayer as a QOF by filing Form 8996 for Year 1.

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 have 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. In addition, we express no opinion on
whether any interest owned in any entity by Taxpayer qualifies as qualified opportunity
zone property, as defined in § 1400Z-2(d)(2), or whether such entity would be treated as
a qualified opportunity zone business, as defined in § 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 Treasury 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. We express no opinion as to whether
Taxpayer’s Year 1 federal income tax return is considered timely filed.

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.

PLR-124848-23 6

In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

This letter ruling is being issued electronically in accordance with Rev. Proc. 2023-1. A
paper copy will not be mailed to the taxpayer.

                                               Sincerely,




                                               Mon L. Lam
                                               Senior Counsel, Branch 4
                                               Office of Associate Chief Counsel
                                               (Income Tax & Accounting)

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