PLR 200022040: Partnership gets more time to elect a basis adjustment

Plain-English summary

A partner died, and the partnership filed its tax return without a section 754 election to adjust the basis of partnership property. The IRS found that the requirements for discretionary filing relief were satisfied. It granted the partnership 60 days from the letter date to make the election for the relevant tax year. The letter did not decide whether the entity qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership make a late section 754 election?
• Outcome: Approved; a written election must be filed within 60 days of the letter.
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 9100.15-00
Washington, DC 20224

Person to Contact:
Number: 200022040
Telephone Number:
Release Date: 6/2/2000
Refer Reply To:
CC:DOM:P&SI:3 PLR-101746-00
Date:
March 6, 2000

LEGEND:

X
=

A
=

D1
=

D2
=

Dear

This responds to your letter, dated December 17, 1999, submitted on behalf of X requesting an extension of time for X to make an election under § 754 of the Internal Revenue Code.

FACTS

A, a partner in X, died on D1. X’s tax return for the taxable year was filed without a § 754 election.

LAW AND ANALYSIS

Section 754 provides that a partnership may elect to adjust the basis of partnership property in the case of a distribution of property or in the case of a transfer of a partnership interest. The election applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable year with respect to which such election is filed and all subsequent taxable years.

Section 1.754-1(b) of the Income Tax Regulations provides that an election
PLR-101746-00
2

under § 754 is made in a written statement filed with the partnership return for the taxable year during which the distribution or transfer occurs. For the election to be valid, the return must be filed no later than the time prescribed for filing the return for the taxable year, including extensions.

Under § 301.9100-1(c) of the Procedure and Administration Regulations, the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code, except subtitles E, G, H, and I, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting the relief will not prejudice the interests of the government. Section 301.9100-1(b) defines the term "regulatory election" to include an election whose due date is prescribed by a regulation published in the Federal Register.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a).

Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of section 301.9100-2.

Requests for relief under 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 granting relief will not prejudice the interests of the government. Section 301.9100-3(a).

CONCLUSION

In the present situation, the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, X is granted an extension of time of sixty (60) days following the date of this letter to make a § 754 election for its tax year ending D2. The election should be made in a written statement filed with the District Director for association with X's tax return. A copy of this letter should be attached to the statement filed with the District Director. A copy of this letter is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed or implied as to the federal income tax consequences of the transactions described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer on whose behalf it was requested.
Section 6110(k)(3) provides that it may not be used or cited as precedent.
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Under the power of attorney on file in this office, a copy of this letter is being sent to X and to the second authorized representative listed on the power of attorney.

Sincerely yours,

Paul F. Kugler
Assistant Chief Counsel
(Passthroughs and Special
Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes