PLR 200121063: Partnership receives more time to elect a basis adjustment

Plain-English summary

A limited partnership missed the deadline to elect basis adjustments under IRC § 754 after an ownership interest changed hands. Its tax return preparer did not discuss the election or include it with the return, and the partnership said it did not know the election was available. The IRS found that the requirements for discretionary filing relief under Treas. Reg. § 301.9100-3 were satisfied. It gave the partnership 60 days from the letter date to file a written § 754 election with the specified IRS office. The IRS did not decide whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership file its § 754 election after the original deadline?
• Outcome: Approved a 60 day extension from the letter date.
• 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: 200121063
Washington, DC 20224
Release Date: 5/25/2001
Index Number: 754.00-00;
9100.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
A = CC:PSI:2 - PLR-116713-00
Date:
X = February 27, 2001
Y =

D1 =

Year 1 =

CPA =

Chief, Planning and Special
Programs =

Dear :

This letter responds to your letter dated August 4, 2000, and subsequent correspondence, written on behalf of X, a limited partnership, requesting that the Service grant X an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 754 of the Internal Revenue Code.

On D1 of Year 1, Y, an S corporation owned entirely by A, acquired an interest in X from another owner. X’s tax returns for Year 1 were prepared by CPA. CPA did not discuss a § 754 election with X or include a § 754 election in X’s tax returns. X was not aware of the possibility for a § 754 election in connection with preparing X’s Year 1 tax return. Therefore, X’s tax return for Year 1 was filed without a § 754 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

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Mr. David O. Hogan
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 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 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" as including 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 § 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).

Based on the information submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an extension of time for 60 days from the date of this letter to make a § 754 election. The election should be made in a written statement filed with the Chief, Planning and Special Programs, for association with X’s tax return. A copy of this letter should be attached to the election.

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Mr. David O. Hogan
Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts 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 who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X.
Sincerely yours,
Paul F. Kugler
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes