PLR 201032001: IRS granted time to make a late section 754 election

Plain-English summary

A partnership inadvertently failed to timely make a section 754 election after an ownership interest was acquired. The IRS concluded that the partnership acted reasonably and in good faith and that granting relief would not prejudice the government. It granted the partnership 120 days from the ruling date to make the election effective for the specified tax year. The partnership and affected taxpayers also had to file federal returns consistent with a timely section 754 election.

Ruling snapshot

• Question: Can a partnership make a late section 754 election for a prior tax year?
• Outcome: Approved
• Key authorities: IRC § 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: 201032001
Third Party Communication: None
Release Date: 8/13/2010
Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.15-00
Person To Contact:
------------------------, ID No. ------------- ------------------------------------------------ Telephone Number:
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Refer Reply To:
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CC:PSI:B02
PLR-100673-10
Date:
April 30, 2010

Legend

P = ----------------------------------
-----------------------------

Q = --------------------------

x = --------

Date1 = ----------------------

Date2 = -------------------

Date3 = --------------------------

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

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

This responds to a letter dated December 18, 2009, and subsequent correspondence, submitted on behalf of P by P’s authorized representative, requesting that P be granted 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 P was formed as a partnership under the laws of State on Date1. On Date2, Q acquired an x percent ownership interest in P. P relied on its tax advisor for tax advice. P, however, inadvertently failed to timely make an election under § 754 for the taxable year ending Date3. P represents that it has
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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.

Section 754 provides that if a partnership files an election, in accordance with the regulations prescribed by the Secretary, the basis of the partnership property is adjusted, 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.

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, P is granted an extension of time of 120 days from the date of this letter to make an election under § 754, effective for the taxable year ending Date3. The election should be made in a written statement filed with the appropriate service center for association with P’s return for the taxable year ending Date3. A copy of this letter should be attached to the statement filed.

As a condition for this late election relief, P and any affected taxpayers must file, within 120 days of the date of this letter, their federal income tax returns for the taxable year ending Date3 through the present consistent with P having made a timely § 754
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election effective for the taxable year ending Date3. Copies of this letter should be attached to any returns or amended returns.

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 Internal Revenue Code and the regulations thereunder. Specifically, no opinion is expressed or implied concerning whether P was or is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, a copy of this letter is being sent to P’s authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: _____
Richard T. Probst, Branch Reviewer
Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: