IRS grants relief after a partnership return omitted its QOF self-certification

Plain-English summary

A partnership was formed to operate as a qualified opportunity fund (QOF) and hired one accounting firm for its tax filings and another firm for opportunity-zone consulting and oversight. The parties agreed that the second firm would review the first-year return for QOF elections and reporting before the accountant filed it. The accountant filed the return on time without sending it for that review and omitted the Form 8996 needed to self-certify as a QOF. The second firm discovered the omission shortly after filing, and the firms submitted an administrative adjustment request with Form 8996. The partnership represented that late relief would not lower the aggregate tax liabilities of the partnership and its investors. The IRS found reasonable and good-faith conduct, treated the Form 8996 attached to the adjustment request as timely filed, and allowed first-year QOF self-certification. It did not rule on whether the partnership or its investments otherwise met the substantive opportunity-zone requirements.

Ruling snapshot

• Question: May a partnership receive relief when its timely filed return omitted Form 8996 because an agreed QOF compliance review did not occur before filing?
• Outcome: approved (the Form 8996 filed with the administrative adjustment request was treated as timely)
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 202448006                                             Third Party Communication: None
Release Date: 11/29/2024                                      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:B08
                                                              PLR-104879-24
                                                              Date:
                                                              August 28, 2024



LEGEND
Taxpayer                         =   ----------------------------------------------------

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

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

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

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

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

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

Date 6                           =   ----------------------

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

State                            =   ------

Manager                          =   --------------------

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

Accountant                       =   -------------------------

Firm 1                           =   --------------------------

Firm 2                           =   ------------------------------------------

                                                    2
PLR-104879-24


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

This letter responds to Taxpayer's request for a letter ruling dated Date 1. 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, representations, and affidavits provided, Taxpayer has
represented that the facts are as follows. Taxpayer, a limited liability company
classified as a partnership for federal tax purposes, was formed on Date 2 in State.
Pursuant to the terms of the Operating Agreement, Taxpayer was formed for the
primary purpose of operating as a QOF and investing in qualified opportunity zone
property within the meaning of section 1400Z-2(d).

Taxpayer intended to elect to be a QOF beginning in Month 1. Taxpayer was advised
and represented by Firm 1, who was engaged by Taxpayer to timely file the applicable
tax forms and advise Taxpayer of the necessary and appropriate actions to be taken by
Taxpayer in order to meet the qualifications of a QOF. Manager, the manager of
Taxpayer, had a long-term relationship with Accountant, a principal of Firm 1.

Accountant had limited exposure to the opportunity zone program and the attendant tax
filings. As a result, on Date 3, Taxpayer also engaged Firm 2 for opportunity zone
consultation and oversight. Firm 2 advised Taxpayer on its formation for meeting the
requirements to qualify as a QOF and assisted Manager in evaluating various
opportunity zone investment options.

Because Firm 2 assisted in Taxpayer’s formation, Firm 2 extended Taxpayer’s
partnership return filing deadline on Date 4 by filing Form 7004, Application for
Automatic Extension of Time To File Certain Business Income Tax, Information, and
Other Returns, and shared such extension with Manager and Accountant. At that time,
Manager, Accountant, and Firm 2 agreed that Accountant would file Taxpayer’s Year 1
tax return, but only after Firm 2 performed a review to ensure the first-year elections and
unique opportunity zone reporting were complied with.

Accountant filed Taxpayer’s tax return on Date 5, prior to Taxpayer’s extended filing
deadline. Shortly thereafter, Manager was notified by Firm 2 that Firm 2 had never
received a draft copy of Taxpayer’s tax return from Accountant prior to filing. As a
result, Manager immediately contacted Accountant, who provided Firm 2 with a copy of
Taxpayer’s tax return, as filed. Upon review of Taxpayer’s tax return, Firm 2 discovered
that Taxpayer failed to certify as a QOF and failed to attach Form 8996 to the return.


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-104879-24                                3

In an effort to correct these issues, Firm 1 and Firm 2 prepared an administrative
adjustment request (AAR) on behalf of Taxpayer, seeking to certify as a QOF and
attaching Form 8996. The AAR was filed on Date 6.

Taxpayer 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;

     (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.

PLR-104879-24                                 4

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, the Form 8996
attached to Taxpayer’s return for Year 1, filed Date 6, is considered timely filed, and
Taxpayer has thereby made the election under section 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.

                                        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.
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.

PLR-104879-24                                           5

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.

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 section 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,



                                             Erika C. Reigle
                                             Senior Technician Reviewer, Branch 8
                                             (Income Tax & Accounting)


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