PLR 200530018: Partnership receives extension to elect basis adjustment

Plain-English summary

An interest in a partnership was transferred from a trust to a decedent's estate. The partnership's tax adviser had failed to tell it that a section 754 election could adjust the basis of partnership property after the transfer. The partnership asked for more time to make the election for the relevant tax year. The IRS found that it met the requirements for late election relief and gave it 60 days from the ruling date to file a written election. The ruling expressed no opinion on other tax consequences.

Ruling snapshot

• Question: Could the partnership make a late section 754 election for the year of the transferred interest?
• Outcome: Approved, with 60 days from the ruling date to file the election.
• Key authorities: IRC §§ 743, 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: 200530018
Third Party Communication: None
Release Date: 7/29/2005
Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:1
PLR-157291-04
Date:
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April 15, 2005

Legend

PRS = --------------------------------
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A = --------------------
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Trust = -----------------------------------------------
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D1 = -----------------

Year 1 = -------

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

a% = --------

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

This responds to a letter dated October 29, 2004, together with subsequent correspondence, submitted on behalf of PRS, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 754 of the Internal Revenue Code.

FACTS

According to the information submitted, PRS was formed under the laws of State.
A died on D1. On D1, Trust owned an a% interest in PRS. All of the assets of Trust,

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including the a% interest in PRS owned by Trust, were transferred to A’s estate. PRS relied on PRS’s tax advisor to provide PRS with tax advice. PRS’s tax advisor inadvertently failed to inform PRS of the advisability of making an election under § 754 for Year 1.

LAW AND ANALYSIS

Section 754 provides that if a partnership files an election, in accordance with the regulations prescribed by the Secretary, the basis of partnership property is adjusted, in the case of a transfer of a partnership interest, in the manner provided in § 743. Such an election shall apply 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 the election was filed and all subsequent taxable years. A transfer of an interest in a partnership on the death of a partner is eligible for the § 754 election. The value of the partnership interest reported on the estate tax return (including discounts) is the value used to determine the basis of the partnership interest and the adjustment to basis of partnership property under §§ 743(b) and 754. See generally, § 1.1014-3.

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.

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.

CONCLUSION

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.

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As a result, PRS 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. A copy of this letter should be attached to the statement filed. A copy of this letter is enclosed for that purpose.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

/s/ Heather C. Maloy

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

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