PLR 200616023: Partnership gets more time for section 754 basis election

Plain-English summary

A partner died and the partner's interest transferred to another holder. The partnership inadvertently missed the deadline for a section 754 election for that tax year, despite relying on a tax adviser. The IRS found that the requirements for discretionary filing relief under section 301.9100-3 of the regulations were met. It gave the partnership 60 days from the ruling letter to file a written section 754 election with the service center, attaching a copy of the letter. The ruling does not decide the transaction's other federal tax consequences.

Ruling snapshot

• Question: Could the partnership make a late section 754 election for the year of the partner's death?
• Outcome: Approved, with the election due within 60 days.
• Key authorities: IRC § 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: 200616023
Third Party Communication: None
Release Date: 4/21/2006
Date of Communication: Not Applicable
Index Number: 754.00-00, 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-149729-05
Date:
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December 13, 2005

Legend:

X -------------------------------------------------------------------------------------
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Y -----------------------------------------------------------
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A ---------------------------------------------- a ------ D1 ------------------------ Y1 ---------

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

This letter responds to a letter dated September 21, 2005, submitted on behalf of X, for 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, A, one of the partners of X, died on D1. At the time of his death, A owned an a percent of general partnership interest in X. At A’s death, A’s interest in X was transferred to Y.

X relied on its tax advisor for tax advice. X, however, inadvertently failed to timely make an election under § 754 for Y1, the year of A’s death. X 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-149729-05
2

Law and Analysis

Pursuant to § 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 with respect to which the election 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. Section 301.9100-1(b) defines the term ”regulatory election” as including an election whose deadline is prescribed by a regulation published in the Federal Register.

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(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 that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. Section 301.9100- 3(a).

Conclusion

Based solely upon 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 60 days following the date of this letter to make an election under § 754. The election should be made in a written statement filed with the appropriate service center for association with X’s return. 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 transaction described above under any other provision of the Code.

PLR-149729-05
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 ruling will be sent to the taxpayer’s representative.

Sincerely,

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

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

cc: