PLR 1047013: The IRS granted more time to make a section 754 election

Plain-English summary

The IRS granted a partnership an extension of time to make a section 754 election after the partnership’s accountant inadvertently failed to file it. The partnership had timely filed its returns and amended returns for the relevant years, reflecting basis adjustments as if the election had been in effect. The IRS concluded that the requirements for relief under the section 9100 regulations were satisfied and allowed the partnership 60 days from the ruling letter to make the election effective for the specified year. The partnership was instructed to attach a copy of the ruling to the election.

Ruling snapshot

• Question: May the partnership make a late IRC § 754 election after its returns reflected the intended basis adjustments?
• Outcome: approved
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b) and 1.6031-1(e); Treas. Reg. §§ 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201047013 Third Party Communication: None
Release Date: 11/26/2010 Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.15-00
Person To Contact:
-------------------------------- ------------------------, ID No. ------------------
-------------------------------- ----------------------------------------------------
----------------------- Telephone Number:
-------------------------------------- ---------------------
Refer Reply To:
CC:PSI:1
PLR-117916-10
Date: August 13, 2010

LEGEND

PRS = ----------------------------------

A = -------------------

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

Date 1 = --------------------------

Date 2 = -------------------------

Year 1 = -------

Year 2 = -------

Year 3 = -------

Year 4 = -------

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

  This responds to a letter dated April 23, 2010, submitted on behalf of PRS,

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

  PRS was formed under the laws of State on D1. A was a partner in PRS until

Date 2 when A died. PRS’s accountant who was responsible for filing the § 754

PLR-117916-10 2

election, inadvertently failed to file the election. PRS’s partnership returns or amended
returns for Year 1, Year 2, Year 3, and Year 4 were timely filed and reflected
adjustments to the basis of partnership property as if a § 754 election were in effect.

LAW AND ANALYSIS

   Section 754 provides that if a partnership files and 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 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 of 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.

   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.

CONCLUSION

   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, PRS is granted an extension of time for 60 days from the date of this letter

PLR-117916-10 3

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.

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of
the material submitted in support of the request for rulings, it is subject to verification on
examination.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

  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.

     In accordance with the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

                                 Sincerely,

                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries)



                           By:    David R, Haglund
                                 David R. Haglund, Branch Chief
                                 Branch 1
                                 Office of Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2)

   Copy of this letter
   Copy of this letter for section 6110 purposes