PLR 201135021: IRS grants more time for a partnership to make a late § 754 election

Plain-English summary

The limited liability company asked for more time to make a § 754 election after a transaction caused a termination under § 708(b)(1)(B). The election would allow adjustments to the basis of partnership property for certain distributions and transfers of partnership interests. The company had inadvertently failed to make the election for the relevant tax year. The IRS concluded that the requirements for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3 were satisfied. It granted 120 days from the letter date to make the election effective for the specified tax year and later years, while expressing no opinion on whether the company was a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the company receive an extension of time to make a late § 754 election for a specified tax year and later years?
• Outcome: Approved
• Key authorities: IRC §§ 708, 734, 743, 754, and 6110; 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: 201135021
Third Party Communication: None
Release Date: 9/2/2011
Date of Communication: Not Applicable
Index Numbers: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00
Person To Contact:
----------------------, ID No. ----------------- ------------------------------------------ Telephone Number:
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----------------------------------------------------- Refer Reply To:
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CC:PSI:B03
PLR-112875-11
Date: May 17, 2011

LEGEND

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

Y = -----------------------------------------------------------------------------------------------------
-----------------------

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

Date = ----------------------
1
Date = ----------------------
2
Date = --------------------------
3
m = ----

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

This letter responds to a letter dated March 22, 2011, 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.

FACTS

X is a limited liability company formed under the laws of State on Date 1. On Date 2, Y purchased m percent of X. Y’s purchase of m percent of X resulted in a termination of X

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under § 708(b)(1)(B). X inadvertently failed to timely file a § 754 election to adjust the basis of partnership property for the taxable year ending Date 3.

LAW & 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(a)-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 six 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 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 making 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 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

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to make an election under § 754, effective for the taxable year ending Date 3 and thereafter. The election should be made in a written statement filed with the appropriate service center for association with X’s return for the taxable year ending Date 3. 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. 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) of the Code 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 ruling request, it is subject to verification on examination.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: _________ Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2):

A copy of this letter
A copy for § 6110 purposes