IRS grants extra time for a partnership’s section 754 election

Plain-English summary

The IRS granted a partnership 120 additional days to make a section 754 election. The partnership had resulted from a merger and later admitted new investors, but it inadvertently failed to make the election for the relevant tax year. The extension makes the election effective for that year and later years, provided the partnership files the required written statement with its return and attaches a copy of the ruling. The relief was granted under the reasonable-cause and good-faith standards for late regulatory elections.

Ruling snapshot

• Question: May the partnership receive extra time to make a section 754 election for the relevant taxable year?

• Outcome: Approved

• Key authorities: IRC § 754; Treas. Reg. § 1.754-1; §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201115002
Third Party Communication: None
Release Date: 4/15/2011
Date of Communication: Not Applicable
Index Numbers: 754.02-00, 9100.15-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-128127-10
Date: January 3, 2011

Legend

X = ----------------------------------------------------------------------------------------------------
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Y = ----------------------------------------------------------------------------------------------------
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State = --------------------
1
State = -------------
2
Date = ---------------

m = ------

Year = -------

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

This letter responds to a letter dated July 1, 2010, and subsequent correspondence, submitted on behalf of X, 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 (Code).

Facts

The information submitted states that X is a State 1 limited liability company that is treated as a partnership for federal tax purposes. In Year, X and Y, a State 2 limited liability company that is treated as a partnership for federal tax purposes, merged and
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the resulting partnership was considered a continuation of X for federal tax purposes. Subsequently, on Date of Year, new investors acquired an m percent ownership interest in X. X inadvertently failed to timely make an election under § 754 for the Year taxable year.

Law and Analysis

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 such 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 Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines a regulatory election to include an election whose due date is prescribed by a regulation published in the Federal Register.

Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for regulatory elections that do not meet the requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

Conclusion

Based on the facts 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
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is granted an extension of time of one hundred and twenty (120) days from the date of this letter to make an election under § 754, effective for the Year taxable year and thereafter. The election should be made in a written statement filed with the appropriate service center for association with X’s Year return. A copy of this letter should be attached to the § 754 election.

Except as expressly provided herein, we express or imply no opinion concerning the federal 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) of the Code provides that it may not be used or cited as precedent.

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 ruling request, it is subject to verification on examination.

In accordance with the power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

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By: Mary Beth Carchia, Senior Technician Reviewer Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes