PLR 1251004: IRS grants extra time for a section 754 election

Plain-English summary

The IRS granted a limited liability limited partnership 120 days to make a late section 754 election. The partnership had failed to make the election for the year in which a member died. The IRS concluded that the requirements for relief were satisfied and allowed the election to apply to the specified taxable year and later years. The election had to be made in a written statement filed with the appropriate service center, with a copy of the ruling attached.

Ruling snapshot

• Question: May the partnership make a late election under section 754 to adjust the basis of partnership property?
• Outcome: Approved
• 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: 201251004 Third Party Communication: None
Release Date: 12/21/2012 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-117410-12
Date:
September 14, 2012

Legend

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

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

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

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

Year1 = -------

Year2 = -------

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

This letter responds to a letter dated March 30, 2012, and subsequent correspondence,
submitted on behalf of X by its authorized representative, 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 was formed as a limited liability limited partnership under State law in Year1. A, a
member of X, died on Date. X inadvertently failed to timely make an election under §
754 for the year of A’s death.
PLR-117410-12 2

                               LAW AND 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 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 interest in the partnership during the taxable year with
respect to which the election was filed and all subsequent tax 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.

Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections. 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.

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
to make an election under § 754 effective for its Year2 taxable year and thereafter. The
election should be made in a written statement filed with the appropriate service center.
PLR-117410-12 3

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, no opinion is expressed or implied concerning the
federal tax consequences of the facts discussed above under any other provision of the
Code. 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 the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



                                By: Joy C. Spies
                                   Joy C. Spies
                                   Senior Technician Reviewer, Branch 1
                                   Office of Associate Chief Counsel
                                   (Passthroughs & Special Industries)

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