PLR 1103029: Partnership receives more time to make a section 754 election

Plain-English summary

A limited liability company asked for more time to make a section 754 election after experiencing a technical termination under section 708(b)(1)(B). The entity had inadvertently failed to make a valid election for the relevant tax year. The IRS granted an extension through the earlier of 120 days from the ruling date or the expiration of the period of limitations for the specified year, subject to filing the election statement and any required consistent returns. The ruling did not address whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the entity receive more time to make a section 754 election for the relevant tax year?
• Outcome: Approved
• Key authorities: IRC §§ 708, 734, 743, and 754; 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: 201103029 Third Party Communication: None
Release Date: 1/21/2011 Date of Communication: Not Applicable
Index Number: 9100.00-00, 754.00-00
Person To Contact:
--------------------- ----------------------, ID No. -----------------
--------------------------------- Telephone Number:
-------------------- ---------------------
---------------------------------------- Refer Reply To:
CC:PSI:B01
PLR-131886-10
Date:
September 28, 2010

Legend

X = ------------------------------------

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

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

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

Year = -------

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

This responds to a letter dated August 2, 2010, submitted on behalf of X by X’s
authorized representative, requesting that X 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.

                                            FACTS

The information submitted states that X was formed as an LLC under the laws of State
on Date 1. X experienced a technical termination under § 708(b)(1)(B) of the Code on
Date 2. X inadvertently failed to timely make a valid § 754 election for the taxable year
ending Date 2.

                                       LAW AND ANALYSIS

PLR-131886-10 2

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

                                  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, X is granted an extension of time of the earlier of 120 days from the date of this
letter or the expiration of the period of limitations for YEAR to make an election under
§ 754, effective for the taxable year ending Date 2. The election must be made in a
written statement filed with the appropriate service center. A copy of this letter should
be attached to the statement filed.

This ruling is contingent on X and any affected taxpayers filing, within the earlier of 120
days from the date of this letter or the expiration of the period of limitations, any required
amended or original returns for the taxable year ending Date 2 through the present

PLR-131886-10 3

consistent with the requested relief being effective on D2. 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 X 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 your authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



                                By: Faith P. Colson
                                   Faith P. Colson
                                   Senior Counsel, Branch 1
                                   (Passthroughs & Special Industries)

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