PLR 200838019: Partnership may make a late Section 754 election after a partner's death

Plain-English summary

A partner died, transferring an interest in a partnership, but the partnership inadvertently failed to make a timely Section 754 election for that year. Such an election permits an adjustment to the basis of partnership property under Section 743 and can apply to an interest transferred at death. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file the Section 754 election effective for the year of the partner's death.

Ruling snapshot

• Question: May the partnership make a late Section 754 basis-adjustment election for the year a partner died?
• Outcome: Approved. It has 60 days to file the election with the ruling attached.
• Key authorities: IRC §§ 743, 754; Treas. Reg. §§ 1.754-1, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200838019
Release Date: 9/19/2008
Index Number: 754.02-00, 9100.15-00

-----------------------
Person To Contact:
--------------------
---------------------, ID No. -------------
----------------
Telephone Number:
----------------------------------------------- --------------------- Refer Reply To:
CC:PSI:2
PLR-137656-07
Date:

February 13, 2008

Legend

X: ---------------------
------------------------------------------

A: ---------------------

State: -------------

D1: ----------------

Year 1: -------

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

This responds to a letter dated July 26, 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.

The information submitted states that X is a State partnership. A was a Partner of X. On D1 of Year 1, A died. X inadvertently failed to timely file a § 754 election.

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 2
PLR-137656-07

an election shall apply with respect 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 § 743(b) with respect to 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) 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.

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.

Based solely 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 for 60 days from the date of this letter to make an election under § 754, effective Year 1, with the appropriate service center. A copy of this letter should be attached to the § 754 election. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code.
3
PLR-137656-07

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

Sincerely,

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

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