PLR 200202053: Partnership granted extra time for section 754 election

Plain-English summary

A limited partnership failed to file a section 754 election after transfers of partnership interests. It represented that the omission was inadvertent, that it was not seeking to use hindsight, and that relief would not prejudice the government. The IRS found the discretionary relief requirements satisfied and granted the partnership 60 days from the letter date to file a written election statement with the applicable service center. The ruling did not decide whether another entity involved in the transactions was a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the limited partnership file its section 754 election after the deadline?
• Outcome: Approved: 60-day extension to file the election statement.
• 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: 200202053
Washington, DC 20224
Release Date: 1/11/2002
Index Number: 754.02-00
Person to Contact:
9100.00-00
Telephone Number:

Refer Reply To:
CC:PSI:B1-PLR-144054-01
Date:
October 11, 2001

Legend

L.P. =

Date 1 =

Date 2 =

Date 3 =

Date 4 =

State 1 =

State 2 =

X
=

Y
=

:

This written determination is in response to your request on behalf of L.P. dated August 6, 2001, requesting that L.P. be given an extension of time in which to make an election under section 754 of the Internal Revenue Code.

Facts

Based on the material submitted and the representations made therein, the
CC:PSI:B1-PLR-144054-01
2

relevant facts appear to be as follows. L.P. was formed as a State1 limited partnership and commenced operations on Date 1. X, also a State 1 limited partnership, acquired its interest in L.P. on Date 2. Y, a State 2 limited partnership, acquired its interest in L.P. on Date 3. L.P. and X intended to file section 754 elections on Date 4. Inadvertently, L.P. and X did not file the section 754 elections.

L.P. represents 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 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 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. Section 301.9100-1(b) defines the term “regulatory election” as an election with a deadline prescribed by a regulation published in the Federal Register, 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.

Conclusion

Based on the information submitted and the representations made therein, we conclude that the requirements of sections 301.9100-1 and 301.9100-3 have been
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satisfied. As a result, L.P. 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 X is a partnership for federal tax purposes.

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

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to the taxpayer.

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

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