PLR 200532018: Partnership gets 60 days to make late basis adjustment election

Plain-English summary

Two buyers acquired all membership interests in a partnership, causing a technical termination under the law then cited by the letter. The partnership filed its return without a section 754 election to adjust the basis of partnership property after interest transfers or property distributions. The IRS found that the conditions for late election relief were met and gave the partnership 60 days to file the election statement. The IRS did not decide whether the entity was a partnership for tax purposes, the value of its assets, or its section 755 allocations.

Ruling snapshot

• Question: May the partnership make a section 754 election after filing its return without one?
• Outcome: Approved; the written election statement and ruling copy must be filed within 60 days.
• Key authorities: IRC §§ 708(b)(1)(B), 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: 200532018
Third Party Communication: None
Release Date: 8/12/2005
Date of Communication: Not Applicable
Index Number: 754.02-00, 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:B01
PLR-123344-04
Date:
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April 21, 2005

Legend

Partnership = -------------------------------------
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A = --------------------------------

B = ---------------------------------

Date = -----------------------

Assets = -----------------------

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

This letter responds to a letter dated April 21, 2004, written on behalf of Partnership requesting a ruling that Partnership be granted an extension of time under section 301.9100-3 of the Procedure and Administration Regulations to file an election under section 754 of the Internal Revenue Code (Code).

FACTS

On Date, A and B purchased all of the membership interests in Partnership causing a technical termination of the Partnership under section 708(b)(1)(B) of the Code. The Partnership’s tax return for the taxable year was filed without a section 754 election.

LAW AND ANALYSIS
PLR-123344-04
2

Under section 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 years.

Section 1.754-1(b) of the Income Tax Regulations provides that an election under section 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, including extensions.

Under section 301.9100-1(c), 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 provides 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 section 301.9100-2. Requests for relief under section 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

CONCLUSION

Based on the information submitted and the representations made, we conclude that the requirements of sections 301.9100-1 and 301.9100-3 have been satisfied. As a result, Partnership is granted an extension of time of sixty (60) days following 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. A copy of this letter is enclosed for that purpose.

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 Partnership is a partnership for federal tax purposes. Further, we express no opinion as to the fair market value of the Assets and Partnership’s allocations under section 755 of the Code.
PLR-123344-04
3

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.

In accordance with the power of attorney on file with this office, a copy of this letter will be sent to the first representative listed.

Sincerely,

Heather C. Maloy

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

Enclosures
Copy of this letter
Copy for section 6110 purposes

cc: