PLR 200731018: Partnership gets time to file a missed basis adjustment election

Plain-English summary

A limited partnership timely filed its return for a year in which one partner acquired an interest from another, but it inadvertently omitted a § 754 election. The IRS found that the standards for late election relief were satisfied. It gave the partnership 60 days to file a written election effective for that year and later years, with the ruling attached. The IRS did not decide whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: Can the partnership file a late § 754 basis adjustment election?
• Outcome: A 60 day extension was granted.
• Key authorities: IRC §§ 754, 743, 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: 200731018
Third Party Communication: None
Release Date: 8/3/2007
Date of Communication: Not Applicable
Index Number: 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
PLR-151009-06
Date: May 1, 2007

X = ----------------------------------------
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State = ----------

General Partner = ----------------------------------------
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Limited Partner = ----------------------------

Former Partner = -----------------------------

a% = --------------

d1 = --------------------------

Year = -------

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

This letter responds to a letter dated October 23, 2006, and subsequent correspondence, submitted on behalf of X, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations for X to file an election under § 754 of the Internal Revenue Code.

FACTS

According to the information submitted, X was formed on d1 as a limited partnership under the laws of State. The general partner of X is General Partner.
PLR-151009-06
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During Year, Limited Partner acquired a a% interest in X from Former Partner. X’s partnership return for Year was timely filed, but a § 754 election to adjust the basis of partnership property was inadvertently not filed with the return.

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) provides that the term "regulatory election" includes an election whose due date is prescribed by a regulation 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 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 60 days following the date of this letter
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to make a § 754 election effective for its Year taxable year and thereafter. The election should be made in a written statement filed with the appropriate service center for association with X's Year return. A copy of this letter should be attached to the § 754 election. A copy is enclosed for that purpose.

Except as expressly set forth above, no opinion is expressed or implied concerning the federal tax consequences of the facts discussed 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 requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to your authorized representatives.

Sincerely,

/s/

WILLIAM P. O'SHEA
Associate Chief Counsel
(Passthroughs & Special Industries)

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