PLR 200806001: Partnership receives 60 days to make a missed basis adjustment election

Plain-English summary

Two members purchased interests in a limited liability company that intended to make a section 754 election to adjust the basis of partnership property. The company filed its partnership return on time but inadvertently omitted the election. The IRS found that the requirements for an extension under the regulatory election relief rules were satisfied. It gave the company 60 days from the letter date to file a written election effective for the earlier tax year and attach a copy of the ruling. The IRS did not decide whether the company qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the company make its section 754 basis adjustment election after filing its partnership return without it?
• Outcome: Approved; a 60 day extension was granted.
• 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: 200806001
Third Party Communication: None
Release Date: 2/8/2008
Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.15-00
Person To Contact:
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Refer Reply To:
CC:PSI:03
PLR-125073-07
Date: November 5, 2007

LEGEND:

X = ------------------------------------------------------------------------------------------------
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D1 = -------------------------

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

Year = -------

Member = ------------------------------------------------------------------------------------------------
1
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Member = ------------------------------------------------------------------------------------------------
2
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Dear ---------------:

This letter responds to a letter dated May 15, 2007, and subsequent correspondence, submitted on behalf of X, 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

According to the information submitted, X was formed on D1 as a limited liability company under the laws of State. During Year, Member 1 and Member 2 purchased

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interests in X, and it was intended that a § 754 election be filed on behalf of X for Year. 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, in part, 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.

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 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 an election.

Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. Requests for relief under § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

CONCLUSION

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Based 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 sixty (60) days following the date of this letter to make a § 754 election effective for Year. The election should be made in a written statement filed with the applicable service center for association with X’s Year partnership tax return. 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 or imply no opinion concerning the federal income tax consequences of the transactions described above under any other provision of the Code. Specifically, we express or imply 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.

Under a power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,

/s/

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

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