PLR 1151014: IRS grants time to make a late Section 754 election

Plain-English summary

The IRS granted a partnership an additional 60 days to make an IRC § 754 election after two members acquired another member's interest. The partnership had timely filed its return but inadvertently omitted the 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 appropriate service center, with a copy of the ruling attached. The IRS did not express an opinion on whether the entity otherwise qualifies as a partnership for federal tax purposes.

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: 201151014 Third Party Communication: None
Release Date: 12/23/2011 Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.15-00
Person To Contact:
------------------------------------------------ --------------------, ID No. -----------------
------------------------------- Telephone Number:
---------------------------------------------- ---------------------
--------------------------------------------- Refer Reply To:
CC:PSI:B01
PLR-126470-11
Date:
September 06, 2011

                                                LEGEND

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

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

B = -------------------

C = --------------------

d1 = ----------------------

Year = -------

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

  This letter responds to a letter dated December 22, 2010, and subsequent

correspondence, submitted on behalf of X, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to file an election
under § 754 of the Internal Revenue Code.

                                                 FACTS

PLR-126470-11 2

   X was formed as a limited liability company. X is treated as a partnership for

Federal tax purposes. The members of X were A, B, and C before d1, when A and B
acquired C’s interest in X. X relied on its tax advisor for advice. X’s partnership return
for Year, the year of the acquisition of C’s interest, was timely filed. However, X
inadvertently failed to timely make a § 754 election. X represents that it has acted
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 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 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 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) provides
that the term "regulatory election" includes an election whose due date is prescribed by
a regulation published in the Federal Register.

   Sections 301.9100-2 and 301.9100-3 provide the standards the Commissioner

will use to determine whether to grant an extension of time to make an election.

    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

PLR-126470-11 3

   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 60 days following the date of this letter
to make an election under § 754 effective for Year. The election should be made in a
written statement filed with the appropriate service center. A copy of this letter should
be attached to the § 754 election. A copy is enclosed for that purpose.

   Except as expressly set forth above, we express or imply no opinion concerning

the federal tax consequences of the facts discussed above under any other provision of
the Code. Specifically, we express or imply 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)

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 representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



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

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