Private Letter Ruling   
Number: 202409007   
Internal Revenue Service   
December 6, 2023   
     
     
     
Internal Revenue Service   
Department of the Treasury   
Washington, DC 20224   
     
Number: 202409007   
Release Date: 3/1/2024   
Index Number: 9100.00-00, 1400Z.02-00     
Third Party Communication: None   
Date of Communication: Not Applicable   
Person To Contact:   
ID No.   
Telephone Number:   
Refer Reply To:   
CC:ITA:B05   
PLR-112940-23   
Date:  December 06, 2023   
     
Dear ******:     
     
This responds to the request by Taxpayer, dated Date 1, for relief under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file Form 8996, Qualified Opportunity Fund. Specifically, Taxpayer requests that the Internal Revenue Service (Service) grant to Taxpayer an extension of time to make an election under § 1400Z-2 of the Internal Revenue Code (Code) and § 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations to self-certify as a Qualified Opportunity Fund (QOF), effective Month 1, Year 3.   
     
FACTS   
     
The information and affidavits submitted reflect the following facts.   
     
Taxpayer, a limited liability company, was formed under the laws of State on Date 2. Manager Member was initially the sole member of Taxpayer and served as its manager. On Date 3, Taxpayer admitted Minority Member as a part owner. Taxpayer's Amended Operating Agreement, dated Date 3, reflects the admission of Minority Member as an owner and indicates that Taxpayer is intended to qualify as a QOF under § 1400Z-2 and invest in qualified opportunity zone property located in a qualified opportunity zone. During Month 1, Year 3, Manager Member and Minority Member made contributions of capital gain to Taxpayer that each received in unrelated transactions. Minority Member made an additional contribution to Taxpayer in Month 2, Year 3. Taxpayer thereafter used the funds to acquire qualified opportunity zone stock of a corporation organized as a qualified opportunity zone business, as defined by § 1400Z-2(d)(3) and § 1.1400Z2(d)-1(d) of the Income Tax Regulations.   
     
Accounting Firm has prepared and filed individual income tax returns for Manager Member since Year 2. Manager Member also retained Accounting Firm to prepare and file Taxpayer's Form 1065, U.S. Return of Partnership Income, for Year 3. Accountant 1, a shareholder in Accounting Firm, has been a certified public accountant since Year 1 and has experience in preparing individual, partnership, and corporate tax returns. Accountant 1 was responsible for preparing and filing a Form 1065 for Year 3 on behalf of Taxpayer.   
     
Accountant 1 prepared Taxpayer's Form 1065 for Year 3 and thereafter timely filed it with the Service on Date 4. Accountant 1, however, inadvertently failed to complete a Form 8996 and attach it to Taxpayer's return (Form 1065) to self-certify as a QOF as of Month 1, Year 3.   
     
During Month 3, Year 4, Accountant 1 prepared the Year 3 individual income tax return for Manager Member, which included a Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments. While in the process of preparing such return, Accountant 1 discovered that he had failed to prepare a Form 8996 for Taxpayer and attach it to Taxpayer's Form 1065 for Year 3. Accountant 1 thereafter informed Manager Member of the failure and began preparing Taxpayer's Year 3 Form 8996.   
     
On Date 5, Accountant 1 filed with the Service an amended Year 3 Form 1065, which included a completed Form 8996, on behalf of Taxpayer. The Form 8996 attached to Taxpayer's amended return was purported to self-certify as a QOF, effective as of Month 1, Year 3. Accountant 1 believed in good faith that, by including a completed Form 8996 with Taxpayer's amended return (Form 1065), Taxpayer had a valid election in place to self-certify as a QOF.   
     
On Date 6, Accountant 1 was contacted by Accountant 2, the return preparer who was retained by Minority Member to prepare and file his individual return for Year 3. Accountant 2 informed Accountant 1 that Minority Member received a written notification from the Service (Letter 6502) that the tax identification number of the entity listed on the Form 8997 attached to Minority Member's return for Year 3 was not associated with a certified QOF.   
     
During Month 4, Year 5, an employee of the Service notified Accountant 2 that Taxpayer had no valid election in place to self-certify as a QOF, effective Month 1, Year 3, because such election could not be made late through the filing of an amended return. Accountant 2 informed Accountant 1 of the information she received from the Service about Taxpayer's failure to timely self-certify as a QOF. Accountant 1 thereafter consulted with a tax attorney, who recommended that Manager Member, on behalf of Taxpayer, make a request to the Service for relief pursuant to §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations.   
     
LAW AND ANALYSIS   
     
Section 1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations to carry out the statute's purposes, including 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 an 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 forms or instructions, or in publications or guidance of the 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).   
     
Because § 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 § 301.9100-1(b) of the Procedure and Administration Regulations.   
     
Sections 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations 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 § 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 § 301.9100-3(b) of the Procedure and Administration Regulations, a taxpayer is deemed to have acted reasonably and in good faith if, although exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue), he was unaware of the necessity for an election. A taxpayer may alternatively demonstrate good faith actions if he reasonably relies on a qualified tax professional and the professional failed to make, or advise the taxpayer to make, the election.   
     
A taxpayer is deemed not to have acted reasonably and in good faith pursuant to the provisions in § 301.9100-3(b)(3) of the Procedure and Administration Regulations if the taxpayer--   
     
(i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662 of the Code at the time the taxpayer requests relief, and the new position requires or permits a regulatory election for which relief is requested;   
     
(ii) was 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) of the Procedure and Administration Regulations 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 Procedure and Administration 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).   
     
Section 301.9100-3(c)(1)(ii) of the Procedure and Administration Regulations 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 is closed by the period of limitations on assessment under § 6501(a) before the taxpayer's receipt of a ruling granting relief under this section.   
     
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 will not prejudice the interests of the Government. Manager Member reasonably relied on a qualified tax professional who failed to make, or advise Taxpayer to make, the election. Consequently, the Form 8996 attached to Taxpayer's amended return for Year 3, filed Date 5, 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 effective as of Month 1, Year 3. 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 3 return.   
     
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 referred to 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 § 1.1400Z2(a)-1(b)(34) of the Income Tax Regulations or whether Taxpayer meets the requirements under § 1400Z-2 of the Code and the regulations thereunder to be a QOF. 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 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.   
     
The rulings contained in this letter are based upon information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.   
     
In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.   
     
Sincerely,   
     
Sue-Jean Kim   
Senior Technician Reviewer, Branch 5   
Office of Associate Chief Counsel   
(Income Tax & Accounting)   
     
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