PLR 200443026: Partnership gets more time to make a basis adjustment election

Plain-English summary

A limited partnership missed the deadline to elect a section 754 basis adjustment for the year in which an ownership interest was purchased. Its tax professional said they had not advised the partnership to make the election. The IRS found that the standards for regulatory election relief were met and gave the partnership 60 days from the letter to file a written election statement. The ruling did not decide whether the entity qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the partnership receive an extension to make its section 754 election?
• Outcome: Approved; the election statement must be filed within 60 days of the letter.
• 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
Washington, DC 20224
Number: 200443026
Release Date: 10/22/04
Index Number: 7701.00-00, 9100.31-00

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Person To Contact:
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----------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:

• CC:PSI:B02 – PLR-159233-03
  Date:
  June 23, 2004

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Legend

LP = ------------------------------

Y = ----------------------------------

A = ---------------

CPA = -------------------------------------

State = --------

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

d2 = --------------------------

n% = ------

Year 1 = -------

Dear -------------:

This responds to your letter, dated September 29, 2003 and subsequent information, submitted on behalf of LP by its authorized representative, requesting that the Service grant LP an extension of time pursuant to § 301.9100-3 of the Procedure

PLR-159233-03
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and Administration Regulations to make an election under § 754 of the Internal Revenue Code.

The information submitted states that LP, a State limited partnership, was formed on d1. On d2, A purchased Y’s n% interest in LP. CPA, a tax professional who was in charge of LP’s tax matters, represents that CPA did not inform LP of the advisability of making a § 754 election. Therefore, a timely § 754 election was not made for LP’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 distribution of property or 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(a)-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.

PLR-159233-03
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Consequently, LP is granted an extension of time for making the § 754 election until sixty (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 LP’s tax return for the Year 1 taxable year. A copy of this letter should be attached to the statement filed.

Except as specifically set forth above, we express no opinion concerning the federal tax consequences of the facts described above under any other provisions of the Code. Specifically, we express no opinion as to whether LP is a partnership for federal tax purposes.

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

Sincerely,

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

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