PLR 200234057: Partnership receives 60 days to make late basis adjustment election

Plain-English summary

A buyer purchased a partnership interest, but the partnership missed the deadline to elect basis adjustments under IRC § 754 after its accountant failed to advise it to file. The IRS found that the partnership met the standards for discretionary filing relief and gave it 60 days from the letter date to submit a written election. The partnership had to attach the ruling to its statement. If an affected year's assessment or refund period had closed, the partnership and buyer had to adjust their bases to account for depreciation that would have been available if the election had been timely made. The IRS did not decide whether the entity otherwise qualified as a partnership for tax purposes.

Ruling snapshot

• Question: Can the partnership make a late § 754 election after a partner bought an interest?
• Outcome: Approved: 60-day extension, with specified basis and depreciation adjustments for closed years
• Key authorities: IRC §§ 743(b), 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: 200234057
Washington, DC 20224
Release Date: 8/23/2002
Index Number: 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B1-PLR-144301-01
Date:
May 21 2002

LEGEND:

Partnership =

A = .
B
=
CPA1 =
CPA2 =
Date 1 =

Dear
:

This letter responds to a request submitted on behalf of Partnership, dated April 6, 2001, seeking a written determination allowing an extension of time for Partnership to make an election under section 754 of the Internal Revenue Code.

FACTS

The taxpayer represents that on Date 1, A purchased from B an interest in Partnership. The transaction qualified for a section 754 election. The taxpayer’s accountant failed to advise the taxpayer to file the section 754 election for the new partnership.

Partnership 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.

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.

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, Partnership 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, Partnership must adjust the basis of property and A must adjust A's basis in Partnership 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

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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.

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

Sincerely yours,

/s/ Paul F. Kugler
Assistant Chief Counsel
(Passthroughs and Special
Industries)

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