PLR 201102026: IRS grants a partnership more time to make a section 754 election

Plain-English summary

A limited partnership asked for extra time to make a section 754 election after a partner died and the partnership missed the filing deadline. The IRS granted an extension of 120 days from the date of the letter. The IRS found that the partnership acted reasonably and in good faith and that the relief would not prejudice the government. The election adjusts the basis of partnership property for certain transfers or distributions. The ruling did not express an opinion on whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership receive extra time to make a section 754 election?
• Outcome: Approved
• Key authorities: IRC §§ 754, 734(b), and 743(b); Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201102026
Third Party Communication: None
Release Date: 1/14/2011
Date of Communication: Not Applicable
Person To Contact:
--------------------, ID No. ------------- Telephone Number:
---------------------
Refer Reply To:
------------------
CC:PSI:B02
------------------------------------------------ PLR-111567-10
-----------------------------
---------------------------
Date:
September 08, 2010

Legend

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

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

D1 = -----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Year = -------

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

This letter responds to a letter dated February 5, 2010, and subsequent correspondence, submitted on behalf of X by its authorized representative, 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

X was formed as a limited partnership under the laws of State. X is treated as a partnership for Federal tax purposes. A was a partner in X until D1 when A died. X relied on its tax advisor for advice. X's partnership return for Year, the year of A's death, was timely filed, however, X inadvertently failed to timely make a § 754 election.

PLR-111567-10
2

X represents that it has 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.

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 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) provides that the term “regulatory election” includes an election whose due date is prescribed by a regulation published in the Federal Register.

Sections 301.9100-2 and 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election.

Section 301.9100-3 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.

PLR-111567-10
3

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 120 days following the date of this letter to make an election under § 754 effective for Year. The election should be made in a written statement filed with the appropriate service center. A copy of this letter should be attached to the § 754 election.

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. Specifically, we express no opinion as to whether or not 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.

In accordance with the power of attorney on file with this office, a copy of this letter will be sent to X’s authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

By: _____
Melissa C. Liquerman
Chief, Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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