PLR 1201008: IRS grants more time for a partnership basis election

Plain-English summary

The IRS granted a lower-tier partnership 120 days to make a late IRC § 754 election. An upper-tier partnership had acquired an interest in the lower-tier partnership, and the lower-tier partnership had failed to file its election on time. The IRS concluded that the requirements for relief under the applicable extension rules were satisfied. The election would apply to the specified tax year and later years, if made in a written statement filed with the appropriate service center.

Ruling snapshot

• Question: Could a lower-tier partnership receive extra time to make a late § 754 election?
• Outcome: Approved, with a 120-day extension
• Key authorities: IRC §§ 734, 743, and 754; 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: 201201008 Third Party Communication: None
Release Date: 1/6/2012 Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
Person To Contact:
---------------------------------------- ----------------------, ID No. -------------
---------------- Telephone Number:
--------------------------------------------- --------------------
--------------------------- Refer Reply To:
CC:PSI:B02
PLR-111970-11
Date:
September 13, 2011

P1 = ------------------------------------------------------------------------------------------------------
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P2 = ------------------------------------------------------------------------------------------------------
-----------------------

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

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

q% = ------

D1 = -----------------------

Year = -------

Dear ------------------

This responds to a letter dated March 16, 2011, and subsequent correspondence,
submitted on behalf of P2 by its authorized representative, requesting an extension of
time under § 301.9100-3 of the Procedure and Administration Regulations to make an
election under § 754 of the Internal Revenue Code.

The information submitted states that on D1, A acquired an interest in P1, a State
limited liability company classified as a partnership for federal tax purposes. P1 owns a
q% interest in P2, a State limited liability company classified as a partnership for federal
tax purposes. P1 made a § 754 election for its Year taxable year. However, P2
inadvertently failed to timely file a § 754 election for Year.

Section 754 provides that if a partnership files an election, in accordance with
PLR-111970-11 2

regulations prescribed by the Secretary, the basis of partnership property shall be
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 such election was filed and all subsequent taxable years.

The optional adjustment to basis under § 754 will be available to both an upper-tier
partnership (UTP) and a lower-tier partnership (LTP) when there is a sale or exchange
of a partnership interest or the death of a partner in UTP, and both UTP and LTP have
made an election under § 754 to adjust the basis of partnership property on a sale or
exchange of a partnership interest or on the death of a partner. Rev. Rul. 87-115, 1987-
2 C.B. 163.

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.

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, P2 is granted an extension of time of 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 P2’s Year return. A copy of this letter should be attached to the
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§ 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 & Special Industries)



                             By: ____________________________
                                 Charlotte Chyr
                                 Senior Technician Reviewer, Branch 2
                                 (Passthroughs & Special Industries)

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