PLR 200714005: Partnership gets 60 days to make late basis adjustment election

Plain-English summary

A foreign partnership missed the deadline for a section 754 election after a transaction treated as a transfer of a partnership interest. The election would allow adjustments to the basis of partnership property. The IRS granted 60 days from the ruling date to file the election statement with the applicable service center. It expressly did not decide whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the entity make a late section 754 election?
• Outcome: Approved; 60 days were granted to file the written election statement.
• 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: 200714005
Third Party Communication: None
Release Date: 4/6/2007
Date of Communication: Not Applicable
Index Number: 9100.00-00, 754.00-00
Person To Contact:

-----------------, ID No. -------------
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Telephone Number:
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(202) 622-3050
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Refer Reply To:
CC:PSI:BR01
PLR-133070-06
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Date: November 20, 2006

Legend:

X = -------------------------------------
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Y = -----------------
------------------------

Z = ------------------------------
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A = ------------------------
--------------

B = ---------------------------------------
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Country = ----------

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

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

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

This letter responds to your request, dated July 5, 2006, on behalf of X, requesting that the Service grant X an extension of time pursuant to section 301.9100-3 of the Procedure and Administration Regulations to make an election under section 754 of the Internal Revenue Code.

PLR-133070-06
2

Facts

The information submitted states that X is a partnership formed in accordance with the laws of Country. X commenced operations on Date 1. On Date 2, Y acquired the stock of Z, the parent of A and B and made a section 338(g) election. Consistent with that section 338(g) election, Y was treated as purchasing the interests in X directly for federal income tax purposes. At the time of the acquisition, both A and B were partners in X. X inadvertently failed to file a timely section 754 election to properly adjust the basis of partnership property.

Law and Analysis

Under section 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 section 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 section 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 Aregulatory election@ as including an election whose deadline is prescribed by a regulation 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 an election. Section 301.9100-1(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 section 301.9100-2. Under section 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.

PLR-133070-06
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Conclusion

Based on the information submitted and the representations made, we conclude that the requirements of section sections 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 letter to make a section 754 election. The election should be made in a written statement filed with the applicable service center. A copy of this letter should be attached to the statement filed. A copy of this letter is enclosed for that purpose.

Except as specifically set forth above, we express no opinion concerning the federal income tax consequences of the transactions described above under any other provision of the Code. Specifically, we express no opinion as to whether X is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code 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 representatives.

Sincerely,

William P. O'Shea
Associate Chief Counsel
(Passthroughs & Special Industries)

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