IRS grants relief for a late qualified opportunity fund self-certification

Plain-English summary

A partnership intended from its formation to operate as a qualified opportunity fund (QOF), but it did not timely file its first Form 1065 or the Form 8996 needed to self-certify as a QOF. The partnership had long used one accounting firm for tax-return work and hired a second firm for QOF advice. Each role was misunderstood, and the first firm mistakenly believed the second firm would prepare the return. After discovering that no return or Form 8996 had been filed, the partnership engaged the second firm to prepare and file them. The IRS found that the partnership acted reasonably and in good faith and represented that relief would not lower its tax liability. It treated the late Form 8996 as timely filed, allowing the partnership to self-certify as a QOF for its first taxable year, but did not rule on whether the partnership or its investments otherwise satisfied the QOF rules.

Ruling snapshot

• Question: May the partnership receive an extension to make its qualified opportunity fund self-certification election on a late Form 8996?
• Outcome: approved (the Form 8996 was treated as timely filed for the partnership's first taxable 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: 202448011                                             Third Party Communication: None
Release Date: 11/29/2024                                      Date of Communication: Not Applicable
Index Number: 1400Z.02-00, 9100.00-00
                                                              Person To Contact:
                                                              ----------------------, ID No. -----------------
----------------------                                        Telephone Number:
----------------------------                                  --------------------
----------------------------                                  Refer Reply To:
                                                              CC:ITA:B08
                                                              PLR-108202-24
                                                              Date:
                                                              August 30, 2024




LEGEND
Taxpayer            =   ------------------------------------------------
State               =   -------------
Accounting          =   -----------------------------------------------------------------------------------------
Firm 1              =   --------------------------
Accounting
Firm 2
Date 1              =   ---------------------
Date 2              =   -----------------------------------------------------------------------------------------
Date 3              =   -----------------------------------------------------------------------------------------
Month 1             =   -----------------------------------------------------------------------------------------
Year 1              =   -----------
Year 2              =   -------

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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of
the Procedure and Administration Regulations, to (1) make a timely election under
section 1.1400Z2(d)-1(a)(2)(i) to be certified as a 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 for its Year 1 taxable year, effective as of Month 1, as
provided by section 1400Z-2(d) and section 1.1400Z2(d)-1(a) of the Income Tax
Regulations.

PLR-108202-24                                2


                                         FACTS

Taxpayer is a limited liability company organized under the laws of State on Date 2.
Taxpayer is classified as a partnership for U.S. Federal income tax purposes and has
provisions in its operating agreement that state that its purpose is to be a QOF and to
invest in “qualified opportunity zone property” as defined in section 1400Z-2(d)(1).
Taxpayer’s annual accounting period is the calendar year and uses the accrual method
of accounting. Year 1 is the first year of Taxpayer’s operation and filing obligation.

For many years preceding the formation of Taxpayer, the owners of Taxpayer employed
Accounting Firm 1 for all of its tax compliance work including the filing of tax returns.
Taxpayer was not aware of the requirement to file Form 8996, Qualified Opportunity
Fund, with Taxpayer’s timely filed initial Year 1 tax return and believed Accounting Firm
1 was engaged to properly prepare and timely file its Year 1 tax return along with any
needed forms to self-certify as a QOF. Taxpayer also hired Accounting Firm 2 to advise
on QOF rules and requirements, but Accounting Firm 2 was not engaged to prepare any
tax returns for Taxpayer. Taxpayer believed Accounting Firm 1 would file any needed
tax forms related to QOF status, and Accounting Firm 2’s role was limited to advising
Taxpayer’s owners on the acquisition of several qualified opportunity zone businesses
from unrelated parties and other QOF requirements.

However, Accounting Firm 1 mistakenly believed that Accounting Firm 2 had been
engaged to prepare Taxpayer’s initial Year 1 tax return. Due to this misunderstanding,
Accounting Firm 1 did not prepare and file Taxpayer’s Year 1 return. In Year 2,
Accounting Firm 1 learned that Accounting Firm 2 did not prepare Taxpayer’s Year 1
return and Form 8996. As soon as Taxpayer became aware of the situation and
confirmed that none of its in-house staff had prepared the return, Taxpayer engaged
Accounting Firm 2 to prepare its Year 1 income tax return. Taxpayer filed the Year 1
return and Form 8996 prepared by Accounting Firm 2 on Date 3.

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

                                  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
forms or instructions, or in publications or guidance published in the Internal Revenue
Bulletin.

PLR-108202-24                                 3

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 1065 and Form 8996 by the due date of its federal income tax return
(including extensions) due to miscommunication between Accounting Firm 1,
Accounting Firm 2, and Taxpayer.

Because section 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 section 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 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 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 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 section 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-108202-24                                 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 section 6501(a) before the
taxpayer’s receipt of a ruling granting relief under this section.

                                      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. Consequently, the Form
8996 attached to Taxpayer’s return for Year 1, filed Date 3, is considered timely filed,
and Taxpayer has thereby made the election under section 1400Z-2 and section
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 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.

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 section 301.9100-1(a).

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. Furthermore, we also
express no opinion on whether any interest owned by Taxpayer qualifies as qualified
opportunity zone property, as defined in section 1400Z(d)(2), or whether such interest
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

PLR-108202-24                                           5

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 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.

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

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,



                                                   Erika C. Reigle
                                                   Senior Technician Reviewer, Branch 8
                                                   Office of Associate Chief Counsel
                                                   (Income Tax and Accounting)


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