PLR 200541030: Partnership receives more time to make a section 754 election

Plain-English summary

A partnership sought extra time to elect a basis adjustment under section 754 after some members sold their interests. It had made adjustments under section 743(b) but inadvertently missed the filing deadline for the section 754 election. The IRS concluded that the partnership met the regulatory requirements for relief and gave it 60 days from the letter date to file the election with its partnership return. The IRS did not decide whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the partnership file its section 754 election after the deadline?
• Outcome: Approved; the IRS granted a 60-day extension.
• Key authorities: IRC §§ 743(b), 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: 200541030
Third Party Communication: None
Release Date: 10/14/2005
Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00
Person To Contact:
------------------------------
--------------------------, ID No. -------------
------------------------------
Telephone Number:
---------------------
-------------------------
Refer Reply To:
---------------------------
CC:PSI:B01
PLR-129082-04
Date:
-
July 01, 2005

Legend

X = ------------------------------------
--------------------------------------------------

State = --------
Date = -----------------------

Year 1 = -------

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

This letter responds to a letter, dated May 7, 2004, submitted on behalf of X, requesting a ruling under § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 754 of the Internal Revenue Code.

FACTS

X is a partnership formed in accordance with the laws of State on Date. Various members of X sold their membership interests beginning in Year 1. X adjusted its partnership interest as permitted by § 743(b), but inadvertently failed to timely file the election to adjust the basis of its property under § 754.

LAW AND ANALYSIS

Section § 754 provides, 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 with respect to which the election
PLR-129082-04
2

was filed and all subsequent 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, including extensions.

Under § 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.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a).

Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions for time for making elections that do not meet the requirements of § 301.9100-2.

Requests for relief under § 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 §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, X is granted an extension of time of sixty (60) days following the date of this letter to make a § 754 election. The election should be made in a written statement attached to the partnership’s return for the taxable year during which the distribution or transfer occurred, filed with the applicable service center. A copy of this letter should also be attached. 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 or not X is a partnership for federal tax purposes.
PLR-129082-04
3

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code 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 ruling 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 of this letter for § 6110 purposes