PLR 200348014: Partnership receives extension for section 754 election

Plain-English summary

A limited partnership filed its tax return without a section 754 election after a partner died. It said its tax preparer had failed to explain the availability and benefits of that election. The IRS concluded that the standards for discretionary filing relief were satisfied and allowed 60 days to make the election effective for the stated tax year. A section 754 election permits adjustments to the basis of partnership property after certain distributions or transfers of partnership interests. The IRS gave no opinion on whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership make a late section 754 election?
• Outcome: Approved; the partnership received 60 days to file a written 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: 200348014
Washington, DC 20224
Release Date: 11/23/2003
Index Number: 754.02-00; 9100.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-133468-03
Date:
August 20, 2003

LEGEND

Partnership
=

A
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Tax Matters Partner =

Date 1
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Date 2
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State
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Year 1
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Dear
:

This letter responds to a letter dated May 27, 2003, and subsequent correspondence, requesting relief under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations for an extension of time in which to make an election under § 754 of the Internal Revenue Code. 2 PLR-133468-03

Facts

According to the information submitted, Partnership is a limited partnership formed under the laws of State on Date 1. A, a partner of Partnership, died on Date 2. 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 to adjust the basis of partnership property.

It is represented that Partnership acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that the facts have not changed since the original due date of the election.

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 for which the election is filed and all subsequent 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.

Under § 301.9100-1(c), 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 § 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 interests of the government. 3 PLR-133468-03

Conclusion

Based on the information submitted and the representations made, 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 effective Year 1. The election should be made in a written statement filed with the applicable service center for association with Partnership’s partnership tax return. 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 of the transactions described above under any other provision of the Code. Specifically, we express no opinion as to whether Partnership is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, we are sending the original of this letter to you, Partnership’s authorized representative, and a copy of this letter to Partnership’s Tax Matters Partner.

Sincerely yours,

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

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

cc: