PLR 200835007: Partnership received 60 days to make a late section 754 election

Plain-English summary

A limited liability company treated as a partnership relied on tax advisers when one owner transferred its partnership interest. The partnership inadvertently failed to timely elect under section 754 to adjust the basis of partnership property. It represented that it acted reasonably and in good faith, would not prejudice the government, and was not using hindsight. The IRS granted 60 days from the ruling date to file a written section 754 election for the requested year and attach the ruling. The IRS did not decide whether the entity otherwise qualified as a partnership.

Ruling snapshot

• Question: Could the partnership obtain extra time to make a section 754 basis-adjustment election?
• Outcome: Approved, with 60 days to file the election
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200835007
Third Party Communication: None
Release Date: 8/29/2008
Date of Communication: Not Applicable
Person To Contact:
Index Number: 754.02-00, 9100.15-00
----------------------, ID No. -------------
Telephone Number:
---------------------
------------------------------------------------------ Refer Reply To:
--------------------------------------------------------------- CC:PSI:B03
---------
PLR-107821-08
------------------------------------------------ Date:
------------------------------------------------------- May 28, 2008
----------------------------

Legend

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

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

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

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

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

d2 = ----------------------

Year = -------

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

This letter responds to a letter dated February 21, 2008, and subsequent correspondence, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an election under § 754 of the Internal Revenue Code.

Facts

X was formed on d1 as a limited liability company under the laws of State. X is treated as a partnership for federal tax purposes. In d2, A transferred its interest in X to
PLR-107821-08
2

B. X relied on its tax advisors for advice. X, however, inadvertently failed to timely make a § 754 election for Year. X represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that it is not using hindsight in making the election.

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 distribution of property, in the manner provided in § 734 and, 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 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 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 301.9100-2 and 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election.

Section 301.9100-3 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 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-107821-08
3

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 to make an election under § 754 effective for Year. The election should be made in a written statement filed with the appropriate service center. A copy of this letter should be attached to the § 754 election.

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 representative.

Sincerely,

/s/

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

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

cc: