PLR 201151011: IRS grants time to make a late Section 754 election

Plain-English summary

The IRS granted a limited partnership an additional 60 days to make a late IRC § 754 election to adjust the basis of partnership property. The partnership had filed later returns consistent with the intended election and represented that it acted reasonably and in good faith, would not prejudice the government, and was not using hindsight. The election must be made in a written statement filed with the applicable service center, with a copy of the ruling attached. The ruling addresses only the extension of time and not other tax consequences.

Ruling snapshot

• Question: May the partnership make a late IRC § 754 election effective for the specified year?
• Outcome: Approved.
• Key authorities: IRC §§ 6031, 734, 743, 754, 6110; Treas. Reg. §§ 1.6031-1(e), 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201151011
Third Party Communication: None
Release Date: 12/23/2011
Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.15-00
Person To Contact:
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Refer Reply To:
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CC:PSI:B01
PLR-118404-11
Date:
August 17, 2011

Legend:

X = ----------------------------------
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State = -------------

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

Year = -------

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

This responds to the letter dated April 22, 2011, and related 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 was a limited partnership formed under the laws of State. X intended to file an election under § 754 with its return for its taxable year ended on Date. Due to inadvertence, the election was not filed.

X represents that it has filed returns for its taxable year ended on Date and subsequent years consistent with the election. Further, X represents that it has acted
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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 a partnership may elect to adjust the basis of partnership property when there is a distribution of property or a transfer of a partnership interest. An election under § 754 applies 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, must 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) for filing the return for such taxable year.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time 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 Code, except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as including an election whose due date is prescribed by a regulation published in the Federal Register.

Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner will use to determine whether to grant an extension of time to make an election. § 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of § 301.9100-2.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. § 301.9100-3(a).

CONCLUSION

Based solely upon 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 is granted an extension of time of sixty (60) days from the date of this letter to make a § 754 election for Year. The election should be made in a written
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statement filed with the applicable service center for association with X’s return. A copy of this letter should be attached to the statement filed.

Except as specifically ruled upon above, no opinion is expressed or implied concerning the tax consequences of any facts discussed or referenced in this letter.

This ruling is directed only to the taxpayer who requested 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, copies of this letter ruling will be sent to your authorized representatives.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

David R. Haglund
By: David R. Haglund
Chief, Branch 1
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)

Copy of this letter
Copy for ' 6110 purpose-s