PLR 200420008: Partnership receives more time to make section 754 election

Plain-English summary

A limited liability company treated as a partnership missed the deadline to elect basis adjustments under IRC § 754 after a partner sold an interest. Its tax professional said they had not considered or advised the election. The IRS found that the requirements for an extension under Treas. Reg. §§ 301.9100-1 and 301.9100-3 were satisfied. It gave the partnership 60 days from the letter date to file a written election for the year of the transfer, with a copy of the ruling attached. The ruling addresses the filing deadline, rather than the amount of any basis adjustment.

Ruling snapshot

• Question: May the partnership make its section 754 election after the original deadline?
• Outcome: Approved, with 60 days to file the written election.
• Key authorities: IRC §§ 754, 734(b), 743(b); Treas. Reg. §§ 1.754-1(b), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200420008
Release Date: 5/14/04
Index Number: 7701.00-00; 9100.31-00

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Telephone Number:
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Refer Reply To:
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CC:PSI:2 – PLR-146651-03
Date:
January 27, 2004

Legend

LLC = -------------------------------------------------------
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X = -------------------------------------
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A = ------------------

n% = ------

State = -------------

Year 1 = ------

d1 = -------------

Dear -------------

This responds to a letter, dated August 4, 2003 and subsequent information, submitted on behalf of LLC by its authorized representative, requesting that the Service grant LLC an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 754 of the Internal Revenue Code.

The information submitted states that LLC is a State limited liability company that is treated as a partnership for federal tax purposes. On d1 of Year 1, a n% partner in LLC, sold his n% interest in LLC to X. A, a tax professional who was in charge of LLC’s
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tax matters, represents that A did not consider or advise LLC to make a § 754 election. Therefore, a timely § 754 election was not made for LLC’s Year 1 taxable year.

Section 754 provides that a partnership may elect to adjust the basis of partnership property in the case of a transfer of a partnership interest. The election applies with respect 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 such election is filed and all subsequent taxable years.

Section 1.754-1(b) of the Income Tax Regulations provides that an election under § 754 to adjust the basis of partnership property under §§ 734(b) and 743(b), with respect to a distribution of property to a partner or a transfer of an interest in a partnership, shall be 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 not later than the time prescribed by § 1.6031-1(e) (including extensions thereof) for filing the return for that taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as an election whose due date 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 the election.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.

Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

Based solely 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, LLC is granted an extension of time for making the § 754 election until 60 days following the date of this letter. The election should be made in a written statement filed with the appropriate service center, for association with LLC’s tax return
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for the Year 1 taxable year. A copy of this letter should be attached to the § 754 election. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code.

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

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to LLC’s authorized representative.

Sincerely,

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

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