PLR 200249005: Partnership gets 60 more days to make a section 754 election

Plain-English summary

A partner died, but his surviving spouse did not promptly tell the partnership's accountant. Unaware of the death, the partnership filed its return without a section 754 election to adjust the basis of partnership property after a transfer of a partnership interest. The IRS accepted the partnership's request for discretionary relief under the election extension regulations. It gave the partnership 60 days from the letter date to file a written election with the appropriate service center and attach the ruling letter. The IRS did not decide whether the entity qualified as a partnership for tax purposes.

Ruling snapshot

• Question: Could the partnership make a late section 754 election after filing its return without one?
• Outcome: Approved; the partnership has 60 days from the ruling date to file the election.
• 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: 200249005
Washington, DC 20224
Release Date: 12/06/2002
Index Numbers: 754.02-00; 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B1-PLR-135046-02
Date:
September 5, 2002

Legend

P =

A =
B =
Y1 =

Dear :

This letter responds to your letter, dated June 3, 2002, and subsequent correspondence, on behalf of P, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to make an election under § 754 of the Internal Revenue Code.

Facts

In Y1, A, a partner of P, died, survived by his wife B. B, who lacked experience in the partnership’s business, did not promptly inform the accountant of P of A’s death. Unaware of A’s death, P filed its partnership return for Y1 without a § 754 election.

P represents that it has acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

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PLR-135046-02

Law and Analysis

Under § 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 § 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 § 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 ruing, 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 § 301.9100-2. Requests for relief under § 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 §§ 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 § 754 election. The election should be made in a written statement filed with the appropriate 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 fo the transactions described above under any other provision of the Code. Specifically, we express no opinion as to whether or not P is a partnership for tax purposes.

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PLR-135046-02

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 will be sent to P.

Sincerely,

/s/
Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2):
Copy of this letter
Copy for § 6110 purposes
CC: