PLR 200202055: Partnership granted time to make section 754 election

Plain-English summary

A limited partnership discovered that it had not made a section 754 election after a transfer of a partnership interest. It requested extra time to make the election and represented that it was not using hindsight, was not under audit for the year, and would not prejudice the government. The IRS found the regulatory relief requirements satisfied and gave the partnership 60 days from the letter date to file a written election statement with the applicable service center. The IRS did not decide whether the entity qualified as a partnership for tax purposes.

Ruling snapshot

• Question: Could the partnership make its section 754 election after the original 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: 200202055
Washington, DC 20224
Release Date: 1/11/2002
Index Number: 754.02-00; 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01- PLR-144059-01
Date:
October 11, 2001

Legend:

L.P.
=

Date 1
=

Date 2
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State 1
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State 2
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X
=

Y
=

Z
=

This written determination is in response to your request on behalf of L.P., dated August 13, 2001, requesting that L.P. be granted an extension of time in which to make an election under section 754 of the Internal Revenue Code.

Facts

Based on the materials submitted and representations made therein, the relevant facts appear to be as follows. L.P. was formed as a State 1 limited partnership and commenced operations on Date 1. Prior to extending the term of L.P., X was the general partner of L.P. 2

Z was formed under the laws of State 2 to acquire the interests of X. In addition, X resigned as the general partner of L.P. and Z was admitted as the new general partner of L.P. Y has only recently discovered that L.P. failed to make a section 754 election following Y’s acquisition of a limited partnership interest in L.P.

L.P. is seeking to be granted an extension of time to make a section 754 election which was originally due on Date 2. L.P. maintains that neither it nor any other parties involved are under audit for the year in question. L.P. represents that it is not using hindsight in making the election and that the interests of the government will not be prejudiced by granting relief.

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 for the taxable year.

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 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 interest of the government.

Conclusions

Based on the information submitted and the representations made therein, we 3

conclude that the requirements of sections 301.9100-1 and 301.9100-3 have been 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 specially 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 L.P. is a partnership for tax purposes.

This ruling is directed only to the taxpayer requesting 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 the taxpayer.

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

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