PLR 200101016: Partnership gets more time to make a section 754 election

Plain-English summary

A company's tax preparer did not tell it about the option to elect a basis adjustment for partnership property under section 754, and the company filed its first return without the election. The IRS found that the company met the standards for an extension and granted 60 days from the ruling date to elect. The company had to file a copy of the letter with the District Director during that period. The IRS did not determine whether the company otherwise qualified to make the election.

Ruling snapshot

• Question: Could the company receive more time to elect basis adjustments under section 754?
• Outcome: Approved: a 60 day extension was granted.
• Key authorities: IRC §§ 734, 743, 754; Treas. Reg. §§ 1.754-1(b), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200101016
Washington, DC 20224
Release Date: 1/5/2001
Index Number: 754.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-112168-00
Date:
October 2, 2000

Company:
a:

Dear

This letter responds to your letter dated June 12, 2000, requesting an extension of time for Company to elect under § 754 of the Internal Revenue Code to adjust the basis of partnership property. Company represents the following facts.

Company’s tax preparer failed to advise Company that it had the option of making a § 754 election. Company filed its return for its first tax year without the election.

Section 754 provides that, if a partnership files an election, in accordance with regulations prescribed by the Secretary, the basis of partnership property shall be adjusted, in the case of a distribution of property, in the manner provided in § 734 and, in the case of a transfer of a partnership interest, in the manner provided in § 743. Such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the tax year with respect to which the election was filed and all subsequent tax years.

Section 1.754-1(b) of the Income Tax Regulations provides that an election under § 754 and this section to adjust the basis of partnership property under §§ 734(b) and 743(b), with respect to a distribution of property to a partner or a transfer of an interest in a partnership, shall be made in a written statement filed with the partnership return for the tax 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 by § 1.6031(a)-1(e) (including extensions thereof) for filing the return for that tax year.

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.

Sections 301.9100-1 through 301.9100-3 provide the standards the 2
PLR-112168-00

Commissioner will use to determine whether to grant an extension of time to make a regulatory 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 § 301.9100-2.

Requests for relief under § 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).

In this case, Company has established that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied. Consequently, Company is granted an extension of 60 days from the date of this letter for electing under § 754 to adjust the basis of its partnership property. Company must file a copy of this letter within the extension period with the District Director for association with Company’s return for its tax year ending on a. A copy of this letter is enclosed for that purpose.

The ruling in this letter is based on information and representations submitted by the 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 ruling, it is subject to verification on examination.

Except for the specific ruling above, no opinion is expressed or implied concerning the federal income tax consequences of the facts of this case under any other provision of the Code. Section 301.9100-1(a) provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election.

In accordance with the power of attorney on file with this office, we are sending copies of this letter to your authorized representatives.

This ruling is directed only to the taxpayer on whose behalf it was requested.
According to § 6110(k)(3), this ruling may not be used or cited as precedent.

Sincerely,
PAUL F. KUGLER
Associate Chief Counsel
(Passthroughs and Special Industries) enclosures: copy of this letter copy for § 6110 purposes