PLR 200901016: LLC gets 60 days to file the section 754 election its return already assumed

Plain-English summary

An LLC treated as a partnership had interests change hands during the year. It filed its partnership return on time and computed the basis adjustments as though a section 754 election were in place, but it never attached the election itself.

That gap matters because section 1.754-1(b) requires the election to be made in a written statement filed with the partnership return for the year of the transfer or distribution, and the return has to be filed by its due date including extensions. Computing as if the election existed does not make it exist.

Since the deadline is set by a published regulation, the election is a regulatory election, which the Commissioner may extend under section 301.9100-1(c) when the automatic relief of section 301.9100-2 does not reach the case. Section 301.9100-3 grants that relief on a showing that the taxpayer acted reasonably and in good faith and that relief will not prejudice the government.

The IRS granted 60 days from the date of the letter to file the election in a written statement with the service center for association with the return, with a copy of the letter attached. It expressly declined to say whether the LLC is a partnership for federal tax purposes at all, which is the premise the whole election rests on.

Ruling snapshot

• Question: May a partnership that reported basis adjustments but never attached
  the section 754 election get an extension to file it?
• Outcome: Approved. A 60-day extension from the date of the letter.
• Key authorities: I.R.C. §§ 754, 734(b), 743(b); Treas. Reg. §§ 1.754-1(b),
  1.6031-1(e), 301.9100-1, 301.9100-2, 301.9100-3(a).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200901016 Third Party Communication: None
Release Date: 1/2/2009 Date of Communication: Not Applicable Person To Contact: Index Numbers: 754.00-00, 9100.15-00 -----------------, ID No. ------------- Telephone Number:
--------------------
----------------------------------------- Refer Reply To:
------------------------------------------------ CC:PSI:B01
----------------------------------------------------------- PLR-119436-08
--------------------------------- Date:
October 06, 2008

LEGEND

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

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

D1 = -----------------------

D2 = ---------------------------

Year = -------

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

This is in response to a letter dated April 24, 2008, submitted on behalf of X, 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.

FACTS

According to the information submitted, X was formed on D1 under the laws of State. X is a limited liability company that is treated as a partnership for federal tax purposes. During Year, interests in X were transferred. X’s partnership return was timely filed for the taxable year ending D2 and reflected adjustments to the basis of partnership property as if a § 754 election were in effect. However, X inadvertently failed to file a
§ 754 election with the return.

LAW AND ANALYSIS
Section 754 provides that a partnership may elect to adjust the basis of partnership property when there is a distribution of property or a transfer of a partnership interest. An election under § 754 applies 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, must 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) for filing the return for such 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 Internal Revenue Code, except subtitles E, G, H, and I. Section 301-9100-1(b) defines the term "regulatory election" as including 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 that the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides rules for requesting extensions of time for 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 evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interest of the government. Section 301-9100-3(a).

CONCLUSION

Based solely 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 a
§ 754 election. The election should be made in a written statement filed with the applicable service center for association with X’s tax return. A copy of this letter should be attached to the statement filed.

Except as expressly provided herein, no opinion is expressed or implied concerning the federal income tax consequences of the transactions described above under any other provision of the Code. Specifically, we express 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) provides that it may not be used or cited as precedent.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

Curt G. Wilson

Curt G. Wilson
Deputy Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: