PLR 200209046: Partnership gets extension for section 754 election

Plain-English summary

An ownership transfer caused a limited liability company to undergo a technical partnership termination under the law described in the ruling. The company did not realize that short-year returns and a new § 754 basis adjustment election were needed, so it missed the election deadline. The IRS found that the extension standards were satisfied and gave the company 60 days from the letter date to file the election statement. The ruling did not decide whether the company was a partnership for tax purposes.

Ruling snapshot

• Question: May the company make a late § 754 election after the ownership transfer?
• Outcome: Approved: 60 days to file the election statement.
• Key authorities: IRC §§ 754 and 708(b)(1)(B); Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200209046
Washington, DC 20224
Release Date: 3/1/2002
Index Number: 754.02-00; 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01- PLR-159513-01
Date:
December 3, 2001

Legend:

LLC =

Date 1 =

X
=

Y
=

Z
=

XX
=

Year 1 =

This letter responds to a request submitted on behalf of LLC, dated September 12, 2001, seeking a written determination allowing an extension of time for LLC to make an election under section 754 of the Internal Revenue Code.

Facts

The taxpayer represents that on Date 1, X purchased a more than fifty percent share in LLC’s capital and profits from Y and Z, and sold a small ownership interest in LLC to XX, causing a technical termination of the partnership under section 708(b)(1)(B).

The taxpayer was unaware of the necessity of filing short year returns, and the filing of a Section 754 election for the new partnership. As a direct consequence, it inadvertently failed to timely file LLC’s 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 2

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 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 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 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 LLC is a partnership for tax purposes. 3

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code 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 written determination will be sent to the taxpayer representative.

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

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