PLR 200723009: Partnership gets more time to elect a basis adjustment

Plain-English summary

A partnership failed to file a § 754 election for the year in which a partner died and the tax ownership of a trust holding a partnership interest changed. That election allows adjustments to the basis of partnership property following a transfer of a partnership interest. The IRS found that the partnership met the standards for an extension and gave it 60 days from the letter date to file a written election with the applicable service center. The partnership must attach a copy of the ruling. The IRS did not decide whether the entity otherwise qualifies as a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the partnership make a late § 754 election after the partner's death?
• Outcome: Yes, if it files the written election within 60 days.
• Key authorities: IRC §§ 743(b), 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: 200723009
Third Party Communication: None
Release Date: 6/8/2007
Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00,
9100.15-00
Person To Contact:
------------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
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CC:PSI:B01
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PLR-131081-06
Date: February 26, 2007

Legend

Partnership = -----------------------------------------
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A = ---------------------
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Trust = ---------------------------------------
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Date = ------------------

Year = -------

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

This letter responds to a request dated May 17, 2006, on behalf of Partnership by its authorized representative, for an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 754 of the Internal Revenue Code.

FACTS

The information submitted states that on Date 1, A died. Prior to A’s death, Trust, which held an interest in Partnership, was a revocable trust, all of which was treated under
§ 671 as owned by A. Upon A’s death, Trust became the owner of all the assets of
PLR-131081-06
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Trust for federal income tax purposes. Partnership inadvertently failed to file a § 754 election for Year.

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, 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 not later than the time prescribed by § 1.6031-1(e) (including extensions thereof) for filing the return for that taxable year.

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 regulations 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 301.9100-1(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.

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
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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, Partnership is granted an extension of time of sixty (60) days following the date of this letter to make a § 754 election. The election should be made in a written statement filed with the applicable service center for association with Partnership’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 transactions described above under any other provision of the Code. Specifically, we express no opinion as to whether Partnership is a partnership for federal tax purposes.

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,

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

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