PLR 200921006: Partnership received conditional relief for a late section 754 election

Plain-English summary

A limited liability company treated as a partnership terminated for tax purposes when two owners sold a specified percentage to a trust. It inadvertently failed to file a section 754 election for the year of that transfer. The IRS concluded that the entity met the regulatory standards for late-election relief and granted 60 days to make the election effective for the relevant tax year. Relief required the entity and every affected taxpayer to file all returns from that year through the present consistently with a timely section 754 election. The IRS did not decide whether the entity was otherwise a partnership or whether the ownership sale was at fair market value.

Ruling snapshot

• Question: Could the entity make a late section 754 basis-adjustment election for the year of its technical termination?
• Outcome: Approved conditionally: the election and all consistent returns had to be filed within 60 days.
• Key authorities: IRC §§ 708, 734, 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: 200921006
Release Date: 5/22/2009
Index Number: 754.02-00, 9100.15-00
Person To Contact:
-----------------------, ID No. ------------- Telephone Number:
----------------------------------
---------------------
--------------------------
Refer Reply To:
-------------------------------
CC:PSI:2 – PLR-135389-08
--------------------------------
Date:
February 04, 2009

Legend

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

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

B: ---------------------

Trust: --------------------------------------
-----------------------------------------

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

z: ----

Date 1: ----------------

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

This responds to a letter dated July 10, 2008, 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 limited liability company formed under the laws of State. On Date 1, A and B sold z% of X to Trust. X terminated under § 708(b)(1)(B) as a result of the sale of A and B’s interests in X to Trust. X inadvertently 2 PLR-135389-08

failed to timely file a § 754 election to adjust the basis of partnership property for the taxable year ending Date 1.

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 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.

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 the 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 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 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 sixty (60) days following the date of this letter to make a § 754 election effective for the taxable year ending Date 1. The 3 PLR-135389-08

election should be made in a written statement filed with the appropriate service center for association with X's return for the taxable year ending Date 1. A copy of this letter should be attached to the statement filed.

As a condition for this late election relief, X and any affected taxpayers must file, within 60 days of the date of this letter, their federal income tax returns for the taxable year ending Date 1 through the present consistent with X having made a timely § 754 election effective for the taxable year ending Date 1. Copies of this letter should be attached to any returns or amended returns.

Except as specifically set forth above, we express no opinion 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 or not X is a partnership for federal tax purposes. In addition, we express no opinion as to whether the Date 1 sale of X stock was for fair market value.

This ruling is directed only to the taxpayer(s) 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,

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

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

cc: