Late relief granted to self-certify a partnership as a Qualified Opportunity Fund

Plain-English summary

A Qualified Opportunity Fund (QOF) is an investment vehicle that lets investors defer and reduce tax on capital gains if they reinvest in designated low-income "opportunity zones." To become a QOF, an entity must "self-certify" by attaching Form 8996 to a timely filed tax return. Here a partnership was formed specifically to operate as a QOF, and its investors reported their opportunity-zone investments on their own returns, but the partnership's tax adviser overlooked filing the partnership's return for the first year, which meant the QOF self-certification election was also late. Once the miss was discovered, the partnership filed the return with Form 8996 and asked the IRS for an extension of time under the "9100 relief" rules. Those rules let the IRS forgive a missed regulatory election when the taxpayer acted reasonably and in good faith (including by relying on a tax professional who failed to make the election) and granting relief will not hurt the government. The IRS found those requirements met and treated the late Form 8996 as timely, so the entity is certified as a QOF as of the month it was formed. The ruling does not decide whether the entity actually qualifies as a QOF or whether the investments qualify; it only forgives the late election.

Ruling snapshot

• Question: Should the taxpayer get an extension of time to file Form 8996 and self-certify as a Qualified Opportunity Fund?
• Outcome: approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                           Department of the Treasury
                                                                    Washington, DC 20224

 Number: 202501007                                                  Third Party Communication: None
 Release Date: 1/3/2025                                             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:
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                                                                    CC:ITA:B04
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                                                                    PLR-107603-24
                                                                    Date:
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                                                                    October 10, 2024




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


                                                     LEGEND


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

State                               =         --------

General Partner                     =         ---------------------------
-----------------------------------------------------------------------
---------------------------------------------------------------------------------------------------

EVP                                 =          --------------------
                                              -------------------------------------------
                                              ------------------------

CFO                                 =         ----------------
---------------------------------------------------------------------------
----------------------------------------------------------------------------------

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

Limited Partner A                   =         ----------------

Limited Partner B                   =         -------------------
PLR-107603-24                                          2


X percent                       =        -------

Y percent                       =        ------

Z percent                       =        -------

Initial Contribution            =        -----------------

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

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

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

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

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

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

Date 7                          =        ------------------

Date 8                          =        --------------------------

Date 9                          =        -----------------------

Date 10                         =        ------------------

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

Year 1                          =        -------


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

This letter responds to Taxpayer’s request, dated Date 10, 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 as a qualified opportunity fund (QOF) as
defined in § 1400Z-2(d); and (2) be treated as a QOF, effective as of the month and
year Taxpayer was formed, as provided under § 1400Z-2 and § 1.1400Z2(d)-1(a)(2).


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-107603-24                                 3

                                          FACTS

According to the facts and representations provided, Taxpayer was formed under the
laws of State on Date 1 and is treated as a partnership for federal income tax purposes.
General Partner holds a X percent interest in Taxpayer. Limited Partner A owns a Y
percent interest in Taxpayer, and Limited Partner B owns a Z percent interest in
Taxpayer (Limited Partner A and Limited Partner B collectively referred to as LPs).
Taxpayer’s annual accounting period is the calendar year, and it uses the accrual
method of accounting. Taxpayer was organized as a QOF for the purpose of acquiring,
developing and operating property in qualified opportunity zones.

EVP was responsible for working with Advisor in connection with filing Taxpayer’s Form
1065, U.S. Return of Partnership Income, for Year 1. On Date 2, EVP advised Advisor
that LPs would invest Initial Contribution in Taxpayer before Date 4, and on Date 3, LPs
contributed Initial Contribution. On Date 5, EVP’s staff provided Advisor with an updated
organizational chart that included Taxpayer. On Date 6, LPs timely filed Form 1040,
U.S. Individual Income Tax Return, which included Form 8997, Initial and Annual
Statement of Qualified Opportunity Fund (QOF) Investments, which reflected the Initial
Contribution.

On Date 7, during a review of the tax returns provided by Advisor for LPs, CFO was
unable to locate Taxpayer’s Form 1065 for Year 1. When meeting with Advisor on Date
8, CFO asked if Advisor prepared or filed Taxpayer’s Form 1065 for Year 1. Due to an
oversight by Advisor, Taxpayer’s Year 1 Form 1065 was not filed. Advisor informed
Taxpayer that the failure to file a timely tax return for Year 1 meant that the election to
self- certify to as a QOF was also late. EVP authorized Advisor to prepare Taxpayer’s
Year 1 Form 1065, as well as seek an extension of time to elect to self-certify to be
treated as a QOF.

On Date 9, Advisor electronically filed Taxpayer’s Year 1 Form 1065, attaching Form
8996, Qualified Opportunity Fund, together 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 and year Taxpayer was formed. Taxpayer thereafter
filed this request for an extension of time on Date 10.

                                  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
PLR-107603-24                                4

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) due
to an oversight by Advisor. Because Treas. Reg. § 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 § 301.9100-3(b)(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.

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;
PLR-107603-24                                 5

       (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
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 9 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 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
PLR-107603-24                                  6

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.

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.

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. 2024-1. 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)

cc:       --------------------
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