PLR 200832014: Partnership gets more time to make section 754 election

Plain-English summary

After a buyer acquired both interests in a partnership, the partnership filed its return without the section 754 election it intended to make. That election allows partnership property basis adjustments following certain transfers or distributions. The partnership requested extra time under the Treasury regulations for late elections. The IRS found that the regulatory requirements for relief were satisfied and granted 60 days from the letter to file the election for the year of the transfer. The election had to be filed with the appropriate service center and accompanied by a copy of the ruling.

Ruling snapshot

• Question: Could the partnership file a section 754 basis adjustment election after its return was filed?
• Outcome: Approved; the partnership received a 60-day extension.
• 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: 200832014
Third Party Communication: None
Release Date: 8/8/2008
Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.15-00,
754.02-00
Person To Contact:
-----------------------, ID No. ------------- ----------------------------------------- Telephone Number:
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Refer Reply To:
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CC:PSI:B03
PLR-130041-07
Date: -------------------
May 07, 2008

LEGEND

X = -----------------------------------------------------------------------------------------------------
-------------------------

A = -----------------------------------------------------------------------------------------------------
--

B = -----------------------------------------------------------------------------------------------------
-------------------------

C = -----------------------------------------------------------------------------------------------------
-------------------------

a = ------

b = ------

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

Date1 = -------------------------

Date2 = ---------------------------

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

This letter responds to a letter dated June 26, 2007, and subsequent correspondence, submitted on behalf of X by X’s authorized representative, requesting 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.

PLR-130041-07
2

FACTS

X was formed under State law on Date1. Upon formation, X had two partners: A and B, owning a and b interests in X, respectively. On Date2, C acquired all of the ownership interests in X from A and B. X’s partnership return for the taxable year ended Date2 was 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 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 such election was filed and all subsequent taxable years.

Section 1.754-1(b) of the Income Tax Regulations provides that an election under § 754 and § 1.754-1 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 such taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 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 a regulatory election to include an election whose due date is prescribed by a regulation published in the Federal Register.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections. 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.

Section 301.9100-3(a) provides that requests for relief subject to § 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.

PLR-130041-07
3

CONCLUSION

Based on the facts 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 from the date of this letter to make an election under § 754, effective for the taxable year ended Date2, with the appropriate service center. A copy of this letter should be attached to the § 754 election.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to X’s authorized representative.

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.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the ruling request, it is subject to verification on examination.

Sincerely,

/s/

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

Enclosures (2)

Copy of this letter
Copy for § 6110 purposes