PLR 200546002: Partnership gets extra time for a section 754 election

Plain-English summary

A limited liability company taxed as a partnership missed the deadline to make a section 754 election for the year a partner died. The election permits basis adjustments to partnership property after certain transfers or distributions. The IRS found that the requirements for discretionary filing relief were met and gave the partnership 60 days from the letter date to file the election statement. It directed the partnership to attach the ruling to that statement and file it for association with the relevant year's partnership return.

Ruling snapshot

• Question: Could the partnership make its section 754 election after the filing deadline?
• Outcome: Approved, with 60 days to file the election statement.
• 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: 200546002
[Third Party Communication:
Release Date: 11/18/2005
Date of Communication: Month DD, YYYY]
Index Number: 9100.15-00
Person To Contact:
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----------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B2
PLR-104682-05
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Date:
June 30, 2005

Legend

LLC = ---------------------------------------

A = -----------------

Date 1 = -----------------------

Year 1 = -------

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

This responds to your letter, dated January 13, 2005 and subsequent information, requesting that the Service grant LLC an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 754 of the Internal Revenue Code.

The facts and representations submitted state that LLC is a limited liability company that is treated as a partnership for federal income tax purposes. A was a partner of LLC. On Date 1, A died. LLC inadvertently failed to timely file the § 754 election for Year 1, the year of A’s death.

LLC 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.

Section 754 provides that a partnership may elect to adjust the basis of partnership property in the case of a distribution of property or in the case of a transfer of a partnership interest. The election applies with respect to all distributions of property

PLR-104682-05
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by the partnership and to all transfers of interests in the partnership during the taxable year with respect to which such election is filed and all subsequent taxable years.

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(a)-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.

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 the election.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.

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.

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. Consequently, LLC is granted an extension of time for making the § 754 election until sixty (60) days following the date of this letter. The election should be made in a written statement filed with the appropriate service center, for association with LLC’s tax return for the Year 1 taxable year. 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 tax consequences of the facts described above under any other provisions of the Code.

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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 a power of attorney on file with this office, a copy of this letter is being sent to LLC’s authorized representative.

Sincerely,

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