PLR 200318040: Partnership gets 60 days for missed basis election

Plain-English summary

A partner died, transferring a partnership interest, but the partnership's tax return preparer did not advise it about the § 754 election to adjust property basis. The partnership filed its return without making the election. The IRS found that the requirements for late election relief under Treas. Reg. § 301.9100-3 were met and granted 60 days to submit the written election. The partnership had to attach the ruling letter. The IRS did not decide whether the entity qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership make a late § 754 basis adjustment election?
• Outcome: Approved, with the election due within 60 days.
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200318040
Washington, DC 20224
Release Date: 5/2/2003
Index Number: 754.02-00; 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-105929-02
Date:
January 22, 2003

Legend

Partnership =

A
=

Date 1
=

x
=

Dear
:

This letter responds to a letter dated December 13, 2001, and subsequent correspondence, requesting a ruling under § 301.9100-3(a) of the Procedure and Administration Regulations that Partnership be granted an extension of time in which to make an election under § 754 of the Internal Revenue Code.

Facts

According to the information submitted, A, an x-percent partner in Partnership, died on Date 1. Partnership, having relied on a professional tax return preparer who failed to advise it of the availability and benefits of an election under § 754, filed its tax return for the taxable year including Date 1 without a § 754 election. 2 PLR-105929-02

It is represented that Partnership acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that Partnership is not using hindsight in making the election.

Law

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 with respect to which the election is filed 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, including extensions.

Section 301.9100-1(c) permits the Commissioner to grant a reasonable extension of time for making certain elections. Section 301.9100-3 provides that an extension of time to file certain elections will be granted if the taxpayer is able to establish that it acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

Conclusion

Based solely on the facts and representations submitted, we conclude that the requirements of §§ 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 § 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. A copy of this letter is enclosed for that purpose.

Except as specifically set forth above, we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the Code. Specifically, no opinion is expressed concerning whether Partnership is a partnership for federal tax purposes. 3 PLR-105929-02

This ruling is directed only to the taxpayers who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely,

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

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