PLR 200631010: Partnership gets 60 days to make a section 754 election

Plain-English summary

A limited liability company made cash distributions to a member that caused the member to recognize gain, but it inadvertently missed the deadline for a section 754 election. That election allows specified adjustments to the basis of partnership property after distributions or transfers of partnership interests. The IRS found that the company satisfied the standards for late regulatory election relief and granted 60 days from the letter to make the election effective for the year at issue. The ruling does not decide any other tax consequences of the distributions.

Ruling snapshot

• Question: May the company make its section 754 basis adjustment election after the deadline?
• Outcome: Approved, with 60 days to file the election.
• Key authorities: IRC §§ 754, 734; 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: 200631010
Release Date: 8/4/2006
Index Number: 754.02-00, 9100.15-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:2 – PLR-145667-05
Date:
March 6, 2006
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Legend

X: -----------------------
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A: -------------------------
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State: ------------

Year 1: ------------------------------------------------------

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

This responds to a letter dated August 25, 2005, and subsequent correspondence submitted on behalf of X, requesting that the Service grant X 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 information submitted states that X is a State limited liability company.
During Year 1, X made multiple cash distributions to A, a member of X, that caused A to recognize gain under § 731(a). X inadvertently failed to timely file a § 754 election.

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 distribution of property, in the manner provided in § 734. Such an election shall apply with respect to all distributions of property by the partnership and to all 2 PLR-145667-05

transfers of interests in the partnership during the taxable year with respect to which the election was 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 § 1.6031-1(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.

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. As a result, X is granted an extension of time for 60 days from the date of this letter to make an election under § 754, effective Year 1, with the appropriate service center. A copy of this letter should be attached to the § 754 election. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code.

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. 3 PLR-145667-05

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

Sincerely,

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

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