PLR 200121050: Partnership receives more time to make a basis adjustment election

Plain-English summary

A partnership filed its return without an IRC § 754 election after a partner died. That election allows basis adjustments when partnership interests are transferred or property is distributed. The IRS found that the partnership met the requirements for an extension under Treas. Reg. §§ 301.9100-1 and 301.9100-3. It gave the partnership 60 days from the letter date to file a written election statement for association with its return. The IRS did not decide whether the entity qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership make a late § 754 basis adjustment election?
• Outcome: Approved a 60 day extension from the letter date.
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3.

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200121050
Release Date: 5/25/2001
Index Nos: 9100.00-00, 7701.00-00
CC:DOM:P&SI:2 - PLR-117470-00

February 26, 2001
X
=
A
=
B
=
Date 1
=
SB/SE Official =

Dear

This is in reply to a letter dated August 31, 2000, submitted by X’s authorized representative on behalf of X, requesting that X be given an extension of time in which to make an election under § 754 of the Internal Revenue Code.

The information submitted states that A, a partner in X. died on Date 1. X's tax return for the taxable year was filed without a § 754 election.

B, a general partner in X, represents that X acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that X is not using hindsight in making the election.

Under § 754, a partnership may elect to adjust the basis of partnership property where there is a distribution of property or a transfer of a partnership interest. The election applies to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable year that the election applies and all subsequent taxable years.
Section 1.754-1(b) of the Income Tax Regulations provides that an election 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 for filing 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 the granting of the relief will not prejudice the interests of the government. Section 301.9100-1(b) defines the term "regulatory election" as an election whose deadline is prescribed by a regulation published in the Federal Register, or

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a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Sections 301.9100-2 and 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-2 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.
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. The election should be made in a written statement filed with SB/SE Official for association with X's tax return. A copy of this letter should be attached to the statement. A copy of this letter is enclosed for that purpose.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by the 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.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the transactions described above under any other provisions 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 taxpayers who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office a copy of this letter is being sent to X's authorized representative.
Sincerely,
PAUL F. KUGLER
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes