PLR 200119018: Extension granted for partnership basis adjustment election

Plain-English summary

A partnership failed to make a section 754 election with its return after the grantor of a grantor trust partner died. The partnership said that it relied on a professional tax return preparer who did not explain the election's availability and benefits. The IRS found that the partnership met the requirements for relief under the regulatory election rules. It granted a 60 day extension to make the election to adjust the basis of partnership property and required the partnership to file it with the designated official and attach a copy of the ruling. The extension did not determine whether the partnership was otherwise eligible to make the election.

Ruling snapshot

• Question: Could the partnership receive more time to make a section 754 election after filing its return without one?
• Outcome: Approved, with a 60 day extension and the stated filing conditions.
• Key authorities: IRC §§ 754, 734, and 743; Treas. Reg. §§ 1.754-1 and 301.9100-1 through -3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200119018
Washington, DC 20224
Release Date: 5/11/2001
Index Number: 9100.15-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-119204-00
Date:
February 6, 2001

X: a:
SB/SE Official:

Dear

This letter responds to your letter dated September 21, 2000, requesting an extension of time for X to elect under § 754 of the Internal Revenue Code to adjust the basis of partnership property. X represents the following facts.

The grantor of a grantor trust-partner of X died in a. X filed its partnership return for the year of the grantor’s death without a § 754 election, having relied on a professional tax return preparer who failed to advise X of the availability and benefits of such an 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-119204-00

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, based on the facts submitted and the representations made, X has established that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied. Consequently, X 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. Within the extension period, X must file the election with the SB/SE Official for association with X’s return for a. A copy of this letter should be attached to the election statement.

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.

Under a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

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