PLR 1311016: IRS grants late-election relief under section 754

Plain-English summary

The IRS granted a partnership an additional 120 days to make a late election under IRC section 754. The partnership had failed to make the election after interests were transferred because its tax advisors did not advise it that the election was available. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government's interests. The election was to apply for the specified tax year and later years.

Ruling snapshot

• Question: May the taxpayer make a late election under IRC section 754?
• Outcome: approved.
• Key authorities: IRC §§ 754, 734(b), 743(b); Treas. Reg. §§ 1.754-1(b), 1.6031-1(e), 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201311016 Third Party Communication: None
Release Date: 3/15/2013 Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
----------------------------------- -----------------------------, ID No. -------------
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------------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:02
PLR-136035-12
Date:
November 26, 2012

Legend
X = -----------------------------------------------------------------------------------------------
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State = --------------
Date 1 = --------------------
Year = -------

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

This responds to a letter dated July 31, 2012, 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 make an election under § 754 of the
Internal Revenue Code.

The information submitted states that X was formed as a limited liability company in
State on Date 1. Interests in X were transferred during Year. However, at that time, X’s
tax advisors did not advise X of the availability of an election under § 754. Accordingly,
X inadvertently failed to timely file a § 754 election for Year.

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 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
PLR-136035-12 2

filed not later than the time prescribed by § 1.6031-1(e) (including extensions therefore)
for filing the return for the 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) defines
the item “regulatory election” as an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-1 through 301.9100-3 provide the standards the Commissioner will
use to determine whether to grant and extension of time to make the election. 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 § 301.9100-3. 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 (1) the taxpayer acted reasonably and in good faith, and (2) granting
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, X 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 X’s Year return. A copy of this letter should be attached to the election.

Except as specifically set forth above, no opinion is expressed concerning the federal
tax consequences of the facts described above under any other provision of the Internal
Revenue Code and the regulations thereunder. 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,
copy of this letter is being sent to X’s authorized representative.

                                  Sincerely,

                                  Bradford R. Poston
                                  Senior Counsel, Branch 2
                                  (Passthroughs & Special Industries)

Enclosures (2)