PLR 201314013: IRS grants more time to make a partnership basis election

Plain-English summary

A partnership asked for more time to make a § 754 election after a partner transferred an interest and the partnership failed to file the required short-year return. The election can adjust the basis of partnership property after certain transfers of partnership interests or property distributions. The IRS found that the requirements for relief were satisfied and granted 120 days from the date of the letter to make the election, effective for the taxable year ending on the redacted date and thereafter. The ruling did not decide whether the entity was a partnership for federal tax purposes.

Ruling snapshot

• Question: Can the partnership receive more time to make a § 754 election?
• Outcome: Approved, with a 120-day extension.
• Key authorities: IRC §§ 708 and 754; Treas. Reg. § 1.754-1; Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201314013
Release Date: 4/5/2013
Index Number: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00
Person To Contact:
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Telephone Number:
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CC:PSI:B03 – PLR-131987-12
Date:
January 2, 2013

LEGEND

X = --------------------------------------------------------------------------------------------------------------------
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Y = --------------------------------------------------------------------------------------------------------------------
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State = -----------

A = --------------------------------------------------------------------------------------------------------------------
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Date 1 = ---------------------------

Date 2 = ---------------------------

a = ----

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

This letter responds to a letter dated June 27, 2012, and subsequent correspondence, submitted on behalf of X by X’s 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
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A formed X as a limited liability company under State law on Date 1. X is treated as a partnership for federal tax purposes. A, a partner in X, sold his a% interest on Date 2 to Y, an unrelated entity, resulting in a technical termination under § 708(b)(1)(B) of X on Date 2. X should have filed a partnership return for the short year ended Date 2, but failed to do so. X represents that, had it filed a partnership return for the short year, it would have also filed a § 754 election to adjust the basis of partnership property with the return.

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 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 interests 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 no more than six 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 the rules governing 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. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice the interests of the Government.

CONCLUSION
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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 of 120 days from the date of this letter to make an election under § 754, effective for the taxable year ending Date 2 and thereafter. The election should be made in a written statement filed with the appropriate service center for association with X’s return for its taxable year ending Date 2. A copy of this letter should be attached to the § 754 election.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion as to whether X is a partnership for federal tax purposes.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

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.

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.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: _____
James A. Quinn
Senior Counsel, Branch 3
Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: