Late partnership basis election requires consistent amended returns

Plain-English summary

A general partnership timely filed its return for the year a partner died but inadvertently omitted the section 754 election to adjust partnership property basis. The IRS granted 60 days from the letter to make the election effective for that year. The partnership must file a written election statement, with the ruling attached, for association with its amended return. As a condition of relief, both the partnership and its partners must amend their federal returns consistently with a timely election. The ruling does not determine whether the entity is a partnership for federal tax purposes or resolve other tax consequences.

Ruling snapshot

• Question: May a partnership make a late section 754 election for the year of a partner’s death?
• Outcome: Approved: file within 60 days and amend partnership and partner returns consistently.
• Key authorities: IRC §§ 754, 743, and 734(b); Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200649010
Release Date: 12/8/2006
Index Number: 754.02-00, 9100.15-00

• Person To Contact:
  -------------------
  ID No. -------------
  Telephone Number:
  ---------------------
  ------------------------------------------------ Refer Reply To:
  -------------------------------------- CC:PSI:2 – PLR-114672-06
  --------------------------------- Date:
  --------------------------------------------------- August 18, 2006
  -

Legend

X: --------------------------------------
------------------------------------------

Partner 1: ---------------------

State: -------------

Year 1: -------

Date 1: -----------------

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

This responds to a letter dated February 21, 2006, and subsequent correspondence, 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.

Facts

The information submitted states that X is a State general partnership. One of X’s partners, Partner 1, died on Date 1 of Year 1. X’s partnership return was timely filed for Year 1, but a § 754 election to adjust the basis of partnership property was inadvertently not filed with the return.

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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.

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.

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 the election.

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 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 sixty (60) days following the date of this

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letter to make a § 754 election effective for Year 1. The election should be made in a written statement filed with the applicable service center for association with X's amended Year 1 return. A copy of this letter should be attached to the statement filed.

As a condition for this late election relief, X and the partners of X must amend their federal income tax returns consistent with X having made a timely § 754 election effective Year 1.

Except as specifically set forth above, we express no opinion concerning the federal income tax consequences of the facts or 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.

This ruling is directed only to the taxpayer(s) 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 X’s authorized representative.

Sincerely,

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

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

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