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TAX CLINIC

and accompanying Form 8996. But this
was not discussed with the entity’s man-
ager, and the entity consequently failed
to timely file Form 1065, with Form
8996 attached, for the entity’s intended
first QOF tax year.
Letter Ruling 202239009 (released
Sept. 30, 2022) involved a domestic
partnership that engaged a tax adviser to
prepare the entity’s partnership federal
income tax return for its first year of op-
eration (i.e., the year in which the entity
received tax-deferred investments from
eligible taxpayers). During that initial
year, the entity conducted no business
activities and generated no revenues,
although it did invest in QOZ property
(QOZP). The tax adviser was given the
task of preparing and timely filing the
partnership’s federal income tax return,
including all related forms and elections
to self-certify the partnership as a QOF
during its first year in existence, so that
the partnership would be considered a
QOF as of the month it was formed. entity’s initial Form 1065, along with as a QOF as of a month during the
Although the tax adviser was engaged Form 8996, had been extended due to company’s first year of existence. In
to file a request for an automatic exten- the COVID-19 pandemic, although it this case, the company had engaged an
sion of time for the partnership’s federal had not been. As a result, the entity’s experienced tax professional to prepare
income tax return for its initial tax year, partnership representative did not re- its initial Form 1065, and the tax profes-
due to an administrative error at the quest a six-month filing extension of the sional was aware of the company’s inten-
adviser’s accounting firm, the tax adviser entity’s federal income tax return for its tion to be a QOF but mistakenly failed
failed to file for an automatic extension initial year on Form 7004, Application to attach Form 8996 to the company’s
on behalf of the partnership. As a result, for Automatic Extension of Time to File otherwise timely filed federal income
the entity failed to file Form 1065, Certain Business Income Tax, Information, tax return for its initial tax year. The
along with Form 8996, on time for its and Other Returns. Although the entity’s taxpayer was not aware of the necessity
intended first QOF tax year. partnership representative intended to to file Form 8996 and had trusted its
In Letter Ruling 202240003 (re- obtain professional assistance in filing tax adviser to properly make the QOF
leased Oct. 7, 2022), the entity was Form 1065 on behalf of the entity, it did self-certification election on its behalf
organized and owned by two members, not seek assistance until after the entity’s for the company’s initial QOF year.
a partnership representative and another initial due date for filing a tax return or However, due to the adviser’s oversight,
member, neither of whom had any requesting an automatic filing extension the Form 8996 was not attached to the
educational or professional background had passed. Consequently, the entity’s U.S. Return of Partnership Income filed by
that focused on taxation. One or both of federal partnership tax return (Form the taxpayer’s accounting firm.
the members contributed tax-deferred 1065), together with its Form 8996 elec- On Nov. 11, 2022, the IRS released
capital to the entity in the same year it tion to self-certify as a QOF, for its first Letter Ruling 202245004, in which
was organized under domestic law as an tax year were not filed on time. another LLC, taxed as a partnership for
LLC, treated as a partnership for federal In Letter Ruling 202243004 (re- federal income tax purposes, was orga- IMAGE BY WESTEND61/GETTY IMAGES
income tax purposes. The partnership leased Oct. 28, 2022), the IRS addressed nized for the purpose of being a QOF
representative, due to unfamiliarity a request by a domestic LLC treated and investing, directly or through one
with U.S. tax laws and procedures, as- as a partnership for federal income tax or more subsidiaries (known as QOZ
sumed that the initial due date for the purposes to retroactively self-certify businesses, or QOZBs), in real estate

24 March 2023 The Tax Adviser