PLR 201108023: Partnership 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. The partnership had timely filed its return but failed to include the election, which can allow basis adjustments under sections 734 and 743. The IRS concluded that the requirements for relief under sections 301.9100-1 and 301.9100-3 were satisfied. It gave the partnership 120 days from the date of the letter to make the election by written statement and attach the ruling to the election.

Ruling snapshot

• Question: Can the partnership make a late section 754 election after timely filing its return?
• Outcome: Approved
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201108023
Third Party Communication: None
Release Date: 2/25/2011
Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.00-00
Person To Contact:
--------------------------
---------------------, ID No. -----------------
------------------------------
Telephone Number:
----------------------------
---------------------
------------------
Refer Reply To:
------------------------------------------ CC:PSI:B03 PLR-135656-10
Date:
November 17, 2010

Legend

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

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

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

Date = ----------

Year = -------

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

This responds to a letter dated August 20, 2010, submitted on behalf of X, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations for X to make an election under § 754 of the Internal Revenue Code.
Facts

X was organized under the laws of State. X is a multi-member limited liability company treated as a partnership for federal income tax purposes. A was a partner of X until her death on Date of Year. X’s partnership return was timely filed for Year. However, X failed to timely file a § 754 election.

Law and Analysis
PLR-135656-10
2

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 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 the election was filed and all subsequent taxable years.

Section 1.754-1(b) of the Income Tax Regulations provides, in part, that an election under § 754 and § 1.754-1(b) 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 under the rules set forth in §§ 301.9100-2 and 301.9100-3 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, in part, that the term “regulatory election” means 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 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.

Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make a regulatory election in cases that do not meet the requirements of § 301.9100-2.

Section § 301.9100-3(a) provides that requests for relief under § 301.9100-3 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 120 days following the date of this letter to make an election under § 754 effective Year. The election should be made in a written statement filed with the appropriate service center for association with X’s Year
PLR-135656-10
3

return. A copy of this letter should be attached to the § 754 election. A copy is enclosed for that purpose.

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 a power of attorney on file with this office, we are sending a copy of this letter to your authorized representatives.

The ruling contained in this letter is 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 ruling, it is subject to verification on examination.

Sincerely,

Associate Chief Counsel
Passthroughs & Special Industries

/s/
By: _________
James A. Quinn
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: