PLR 200449023: Partnership gets 60 days to make late basis adjustment election

Plain-English summary

Three related entities filed partnership returns after one distributed cash to some of its partners. The distributing partnership made a § 754 basis adjustment election, but the other two omitted it from their returns, even though later returns were prepared as if all three had elected. The IRS granted the lowest tier entity 60 days from the ruling date to file its § 754 election. The ruling does not grant the middle tier entity the same extension, and the IRS expressly declined to decide whether the recipient was a partnership for federal tax purposes.

Ruling snapshot

• Question: May the lowest tier entity make a late § 754 election?
• Outcome: Approved a 60 day extension for that entity.
• 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: 200449023
Release Date: 12/3/04
Index Numbers: 754.02-00, 9100.15-00

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Person To Contact:
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-------------------, ID No. ------------
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Refer Reply To:
CC:PSI:B01 – PLR-133922-04

• Date:
  August 17, 2004

Legend:

X = ---------------------
Y = ---------------------------
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Z = ---------------------------
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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.

Z 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-133922-04
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, Z 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 Z is a partnership for federal tax purposes.

PLR-133922-04
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: