PLR 200648010: LLC gets 60 days to make late section 754 election

Plain-English summary

A limited liability company missed the deadline to elect a basis adjustment under section 754 after a member died. It represented that it acted reasonably and in good faith, was not using hindsight, and would not prejudice the government. The IRS granted 60 days from the letter's date to file the election, effective as of the member's death, with the appropriate service center. The letter explains that a transfer of a partnership interest at death can qualify for a section 754 election and that the election affects transfers and distributions in the election year and later years. The IRS gave no ruling on other federal tax consequences.

Ruling snapshot

• Question: Could the LLC make a section 754 election after the deadline for the year a member died?
• Outcome: Approved; 60 days to file the election, effective on the member's death date.
• Key authorities: IRC §§ 754, 743(b), 734(b); 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: 200648010
Third Party Communication: None
Release Date: 12/1/2006
Date of Communication: Not Applicable
Index Numbers: 754.02-00, 9100.15-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
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Date: August 25, 2006

Legend

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

State = -------------------

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

Date 2 = -------------------------

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

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

We received your letter dated March 27, 2006, submitted on behalf of X, requesting relief under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations for an extension of time in which to make an election under § 754 of the Internal Revenue Code. This responds to your request.

Facts

The information submitted states X is a limited liability company formed under the laws of State on Date 1. On Date 2, A, a member in X, died. X inadvertently failed to timely file the § 754 election.

It is represented that X acted reasonably and in good faith, that granting the relief will not prejudice the interests of the government, and that X is not using hindsight in requesting relief to make the election.
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Law and Analysis

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 transfer of a partnership interest, in the manner provided in § 743. Such an election shall apply with respect 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 taxable years. A transfer of an interest in a partnership on the death of a partner is eligible for the § 754 election. The value of the partnership interest reported on the estate tax return (including discounts) is the value used to determine the basis of the partnership interest and the adjustment to basis of partnership property under §§ 743(b) and 754. See generally, § 1.1014-3.

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.

Conclusion

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 of 60 days from the date of this letter to make an election under § 754, effective Date 2, with the appropriate service center. A
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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 provisions 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.

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

Sincerely,

/s/

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

Enclosures (2)

Copy of this letter
Copy for § 6100 purposes