IRS grants more time to make an omitted section 754 election

Plain-English summary

An LLC treated as a partnership timely filed its partnership return, but inadvertently failed to include the section 754 election needed to adjust the basis of partnership property after a new owner purchased an interest. The IRS concluded that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. It granted the partnership 60 days from the ruling date to make the election by written statement and required a copy of the ruling to be attached. The IRS did not express an opinion on whether the LLC was a partnership for federal tax purposes or on other tax consequences.

Ruling snapshot

• Question: May the partnership receive an extension to make a section 754 election omitted from its timely filed return?
• Outcome: Approved, with 60 days from the ruling date to make the election.
• Key authorities: IRC §§ 734(b), 743(b), 754, and 6110(k)(3); Treas. Reg. §§ 1.754-1(b), 1.6031-1(e), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200929003
Third Party Communication: None
Release Date: 7/17/2009
Date of Communication: Not Applicable
Person To Contact:
Index Number: 754.00-00, 9100.15-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:B01
----------------------------------------- PLR-146403-08
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Date:
April 09, 2009

Legend

X = ----------------------------------
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A = --------------------------
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D1 = -----------------------

Y1 = -------

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

This letter responds to a request dated October 16, 2008 for 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

The information submitted states that X is a limited liability company that is treated as a partnership for federal tax purposes. On D1, A purchased an interest in X. X's partnership return was timely filed for Y1, 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 the regulations prescribed by the Secretary, the basis of partnership property is adjusted, in

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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, is 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.

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 Code, except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as including an election whose deadline is prescribed by a regulations published in the Federal Register.

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 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 extensions for time for making elections that do not meet the requirements of section 301.9100-2.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. Section 301.9100-3(a).

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

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 X is a partnership for federal tax purposes.

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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 ruling will be sent to the taxpayer’s representative.

Sincerely,

Curt G. Wilson

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

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

cc: