PLR 201222012: IRS grants more time to make a section 754 election

Plain-English summary

The IRS granted a limited liability company more time to make a section 754 election for the taxable year in which a partner died. The election had been omitted from the partnership return even though the return was timely filed. The IRS found that the requirements for relief under the regulations were satisfied and allowed the election by the earlier of 120 days after the ruling date or the date the statute of limitations would otherwise expire. The election can adjust the basis of partnership property in connection with transfers of partnership interests or distributions.

Ruling snapshot

• Question: May the LLC make a late section 754 election to adjust the basis of partnership property?
• Outcome: Approved, extension granted.
• Key authorities: IRC § 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: 201222012
Third Party Communication: None
Release Date: 6/1/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 754.00-00, 9100.15-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:B03
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PLR-130011-11
Date:
January 25, 2012

Legend

X = -------------------------------------------------------------------------------------------------
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State = -------------
Date 1 = ------------------
Decedent = ------------------------
Date 2 = ------------------
Year = -------
Date 3 = -------------------

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

This letter responds to a letter dated July 14, 2011, 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 (Code).

Facts

The information submitted states that X was formed as a limited liability company under State law on Date 1. Decedent died on Date 2 owning 25% of X through his living trust. A partnership return was timely filed for X for the year in which Decedent died, however a §754 election to adjust the basis of the partnership property was inadvertently not filed with the return.

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 the partnership property shall be
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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 interested 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 not 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 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 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 is granted an extension of time until the earlier of 120 days from the date of this letter or Date 3, the date the statute of limitations would otherwise expire, to make an election under § 754, effective for its 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
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referenced in this letter. Specifically, we express or imply no opinion as to whether 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.

The rulings contained in this letter are 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 requests, 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)

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

Enclosures
Copy of this letter
Copy for Section 6110 purposes

cc: