IRS treats a late qualified opportunity fund self-certification as timely

Plain-English summary

A partnership and its tax-return preparer knew that the partnership intended to be a qualified opportunity fund (QOF) and that it needed to attach Form 8996 to its first Form 1065. The preparer completed both forms, the partnership reviewed and approved them, and the preparer intended to file them electronically by the extended deadline. An administrative oversight caused neither form to be filed. The omission was discovered during a later IRS audit of one member's individual return, when the examiner requested the partnership's first-year return. The preparer immediately filed the Form 1065 and Form 8996. Based on affidavits and representations, including that relief would not reduce the affected year's tax liability, the IRS found reasonable and good-faith conduct and treated the late Form 8996 as timely filed. The ruling allowed first-year QOF self-certification but did not decide whether the partnership or its investments otherwise met the substantive opportunity-zone requirements.

Ruling snapshot

• Question: May a partnership receive relief for a Form 8996 that its preparer completed but failed to file because of an administrative oversight?
• Outcome: approved (the late Form 8996 was treated as timely filed for the partnership's first year)
• 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: 202448009                                             Third Party Communication: None
Release Date: 11/29/2024                                      Date of Communication: Not Applicable
Index Number: 1400Z.02-00
                                                              Person To Contact:
-----------------------                                       ----------------, ID No. -----------------
------------------------                                      Telephone Number:
----------------------                                        --------------------
---------------------------------------                       Refer Reply To:
----------------------------                                  CC:ITA:B08
                                                              PLR-106499-24
                                                              Date:
                                                              August 27, 2024




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

Legend

Taxpayer         =      ----------------------
Date 1           =      ---------------------
Date 2           =      ---------------------------
Date 3           =      ----------------------
Date 4           =      --------------------------
Firm             =      -------------------------------------
Interest A       =      ------------------
Interest B       =      ------------------
Interest C       =      ------------------
Interest D       =      -----------------
Member 1         =      ------------------
Member 2         =      --------------------
Member 3         =      -----------------------------------------------------------
Member 4         =      -----------------------------------------------------------------------------------------
                        ----------
State Z          =      -------------
Year 1           =      -------
Year 2           =      -------
Year 3           =      -------

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

This letter responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests relief, under sections 301.9100-1 and 301.9100-3 of the Procedure and
Administrative Regulations, for an extension of time 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

PLR-106499-24                                 2

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

                                         FACTS

Based on the affidavits and additional information provided, Taxpayer was organized as
a limited liability company under the laws of State Z on Date 2 and is treated as a
partnership for Federal income tax purposes. The Taxpayer has four members: (1)
Member 1, who owns Interest A; (2) Member 2, who owns Interest B; (3) Member 3,
who owns Interest C; and (4) Member 4, who owns Interest D. Taxpayer is an accrual
method taxpayer and keeps its books and accounting records on a calendar year end
basis. Member 1 and Member 2 are its managing members.

Firm is the tax return preparer for Taxpayer. Taxpayer and Firm were both aware of
Taxpayer’s intent to be a QOF and of the requirement to file a Form 8996, Qualified
Opportunity Fund, for the Taxpayer to self-certify its QOF status and to be treated as a
QOF. Further, both were aware that the Form 8996 needed to be attached to
Taxpayer’s initial Form 1065, U.S. Return of Partnership Income, in order to self-certify
as a QOF.

For the Taxpayer’s Year 1, Firm timely filed a Form 7004, Application for Automatic
Extension of Time to File Certain Business Income Tax, Information, and Other Returns.
Firm then prepared Taxpayer’s Form 1065. It also prepared the Form 8996. On Date 3,
Firm provided fully prepared copies of Forms 1065 and 8996 to Taxpayer for review.
Taxpayer reviewed both forms and authorized Firm to electronically file both. Firm
intended to timely file both forms contemporaneously. However, due to an
administrative oversight, Firm failed to electronically file both Form 1065 and Form 8996
by their extended due date.

Firm timely filed Taxpayer’s Year 2 return. During Year 3, the Internal Revenue Service
initiated an audit of Member 1’s Form 1040, U.S. Individual Income Tax Return. During
that audit, the examiner requested a copy of Taxpayer’s Year 1 return. It was at this
time that Firm discovered its failure to file Taxpayer’s Year 1 return. Firm immediately
filed Taxpayer’s Year 1 Form 1065 and Form 8996 electronically. Taxpayer and Firm
discussed what actions, if any, must be taken in connection with Taxpayer’s certification
as a QOF for Year 1, resulting in this letter ruling request.

Taxpayer represents that granting relief under section 301.9100-3 of the Procedure and
Administration Regulations will not result in a lower tax liability for the year affected by
the election.

PLR-106499-24                                3


                                 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 § 1.400Z2(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 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 Federal income tax return (including extensions). The
information provided indicates that Taxpayer did not file its Form 8996 by the due date
of its Federal income tax return (including extensions) due to Firm’s administrative
oversight.

Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF
and electing to self-certify as a QOF. As such, these elections are regulatory elections,
as defined in section 301.9100-1(b). According to section 301.9100-3(a), requests for
extensions of time for regulatory elections that do not meet the requirements of section
301.9100-2 (automatic extensions) must be made under the rules of section 301.9100-

3. Additionally, requests for relief subject to section 301.9100-3 will be granted when the
taxpayer provides evidence to establish that the taxpayer acted reasonably and in good
faith, and that the granting 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 failed to make the election, because after
exercising reasonable diligence (taking into the account the taxpayer’s experience and
the complexity of the return or issue), the taxpayer was unaware of the necessity for the
election, 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 reasonable 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;

PLR-106499-24                                 4

  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 year 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)(i) 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 section 6501(a) before the
taxpayer’s receipt of a ruling granting relief under this section.

Based on the information provided, including affidavits and representations under
penalties of perjury, we conclude that Taxpayer has acted reasonably and in good faith,
and that granting a reasonable extension of time for Taxpayer to file Form 8996 will not
prejudice the interests of the Government. Consequently, the Form 8996 attached to
Taxpayer’s return for Year 1, filed on Date 4, is considered timely filed, and Taxpayer
has thereby made the election under § 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 all appropriate parties. This
office has not verified any of the material submitted in support of the request for a ruling.
However, as part of the 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. Further, we also express
no opinion on whether any interest owned in any entity by Taxpayer qualifies as

PLR-106499-24                                  5

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 Code or regulations that
may be applicable, or regarding the tax treatment of any conditions existing at the time
of, or effects resulting form, 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 representative.

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,



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


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