PLR 200234034: Partnership gets more time to elect basis adjustments

Plain-English summary

A partner's spouse died, and a fraction of his partnership interest passed to her estate under state law. The partnership filed its return without an IRC § 754 basis adjustment election after relying on a preparer who had not advised it about the election. The IRS granted 60 days from the letter date to file the written election. If a relevant year was closed, the partnership and partner must adjust their bases to account for depreciation that would have been allowable had the election been timely. The IRS gave no opinion on whether the entity was a partnership for tax purposes.

Ruling snapshot

• Question: May the partnership file a late § 754 election after a transfer of a partnership interest?
• Outcome: Approved: 60-day filing extension, subject to stated basis adjustments for closed years
• Key authorities: IRC §§ 743(b), 754; Treas. Reg. §§ 1.754-1(b), 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200234034
Washington, DC 20224
Release Date: 8/23/2002
Index Number: 754.02-00; 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B1-PLR-112325-02
Date:
May 16 2002

LEGEND:

P
=

A
=
B
=
Date 1 =

Dear
:

A, wife of B, died on Date 1. B is a partner of P. Under controlling state law, a fraction of B’s interest in P passed to A’s estate. P filed its partnership return for the year of A's death without a section 754 election, having relied on a professional tax return preparer who failed to advise P of the availability and benefits of such an election.

P 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 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, 2
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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.

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 satisfied. As a result, 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.

If the statutory period of limitation on assessment or filing a claim for refund has expired for any year subject to this grant of late relief and as a condition of this late relief, P must adjust the basis of property and B must adjust B's basis in P to reflect any additional depreciation that would have been allowable under section 743(b) if the section 754 election had been timely made. Any depreciation deduction allowable for an open year, is to be computed based upon the remaining useful life and using property basis as adjusted by the greater of any depreciation deduction allowed or allowable in any prior year had the section 754 election been timely made.

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 Partnership is a partnership for tax purposes.

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.
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Pursuant to the Power of Attorney on file with this office, a copy of this written determination will be sent to the taxpayer representatives.

Sincerely yours,
Paul Kugler
Assistant Chief Counsel
(Passthroughs and Special Industries)

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