PLR 200130025: LLC gets 60 more days to make a section 754 election

Plain-English summary

An LLC filed its return after transfers of members' interests without a section 754 election. The LLC represented that it acted reasonably and in good faith, that relief would not prejudice the government, and that it was not using hindsight. The IRS found the requirements of the extension regulations satisfied and gave the LLC 60 days from the ruling date to make the election. It directed the LLC to file a written election statement with the applicable Service Center and attach a copy of the ruling. The IRS did not decide whether the LLC was a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the LLC make a section 754 basis-adjustment election after filing its return without one?
• Outcome: Approved, with a 60-day deadline to file the election statement and ruling.
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200130025
Washington, DC 20224
Release Date: 7/27/2001
Index Number: 754.02-00;9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01-PLR-103060-01
Date:
April 30, 2001

Legend

LLC =

X =

Y =

Z =

Date 1=

Date 2=

Date 3=

This responds to a letter submitted on behalf of LLC dated December 28, 2000, requesting that LLC be given an extension of time in which to make an election under section 754 of the Internal Revenue Code.

FACTS

X, Y, and Z transferred their interests in LLC on Date 1, Date 2, and Date 3, respectively. LLC’s tax return for the taxable year was filed without a section 754 election.

LLC represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that it is not using hindsight in making the election.

LAW AND ANALYSIS

Under section 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

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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 section 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 section 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” as an election whose deadline is prescribed by a regulation published in the Federal Register, or 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 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.

CONCLUSIONS

Based on the information submitted and the representations made, we conclude that the requirements of sections 301.9100-1 and 301.9100-3 have been satisfied. As a result, LLC is granted an extension of time of sixty (60) days following the date of this letter to make a section 754 election. The election should be made in a written statement filed with the applicable service center. A copy of this letter should be attached to the statement filed. A copy of this letter is enclosed for that purpose.

Except as specifically set forth above, we express no opinion concerning the federal income tax consequences of the transactions described above under any other provision of the Code. Specifically, we express no opinion as to whether or not LLC is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

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Pursuant to the power of attorney on file with this office a copy of this letter is being sent to your authorized representatives.

Sincerely yours,
/s/Paul F. Kugler
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for section 6110 purposes