PLR 200449010: Partnership gets more time to make a section 754 election

Plain-English summary

Three related partnerships prepared their returns as though each had elected under § 754 to adjust the basis of partnership property. One partnership made the election, but the other two inadvertently omitted it from their returns. The IRS granted one of the partnerships 60 days from the ruling letter to file its election. The decision relied on its representations that it acted reasonably and in good faith, was not using hindsight, and would not prejudice the government's interests. The letter did not grant an extension to the other partnership that missed the election.

Ruling snapshot

• Question: May one partnership make a late § 754 election?
• Outcome: Approved; the partnership received a 60-day extension.
• 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
Washington, DC 20224
Number: 200449010
Release Date: 12/3/04
Index Numbers: 754.02-00, 9100.15-00

--------------------------
Person To Contact:
----------------------------
-------------------, ID No. ------------
-------------------------------------------- Telephone Number:
-------------------------
--------------------
Refer Reply To:
CC:PSI:B01 – PLR-116378-04
-
Date:
August 17, 2004

Legend:

X = ---------------------
Y = ---------------------------
----------------------

Z = ---------------------------
----------------------

X = -------

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

This letter responds to your letter dated March 16, 2004, 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

According to the materials submitted and representation therein, X, Y, and Z are classified as partnerships for federal tax purposes. X is a partner of Y. Y is a partner of Z. In year x, X made cash distributions to some of its partners. X made a section 754 election in its federal tax returns for year x. However, when Y and Z filed their federal tax returns for year x, they inadvertently failed to make a section 754 election. The federal tax returns of X, Y, and Z for year x and thereafter were prepared as if section 754 elections were effective for X, Y, and Z.

Y represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that it is not using hindsight in making the election.

PLR-116378-04
2

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 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 § 301.9011-3 will be granted when the taxpayer provides evidence to granting relief will not prejudice the interest of the government.

Conclusion

Based on the information submitted and representations therein, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, Y is granted an extension of 60 days from the date of this letter to make a section 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 filed.

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 Y is a partnership for federal tax purposes.

PLR-116378-04
3

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 your authorized representative.

Sincerely,

/s/ Heather C. Maloy

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

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