PLR 1337010: Partnership receives more time to make a section 754 election

Plain-English summary

A limited liability company treated as a partnership for federal tax purposes inadvertently failed to make a timely IRC § 754 election after a new owner acquired an interest. The partnership said it had relied on its tax adviser and had acted reasonably and in good faith. The IRS granted a 120-day extension to make the election for a redacted tax year. The partnership and affected taxpayers were also required to file consistent amended returns within that period.

Ruling snapshot

• Question: May the partnership make a late election under IRC § 754?
• Outcome: Approved, with a 120-day filing period and amended-return conditions.
• Key authorities: IRC §§ 754, 734(b), 743(b), and 6110(k)(3); Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201337010 Third Party Communication: None
Release Date: 9/13/2013 Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
------------------------------------ -----------------------, ID No. --------------
---------------------------------------------------------- Telephone Number:
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-------------------------- Refer Reply To:
CC:PSI:B02
PLR-148391-12
Date:
April 23, 2013

P = -------------------------------------------------------------------------------------------------------------------
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Q = -------------------------------------------------------------------------------------------------------------------
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x = ----

Date1 = --------------------

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

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

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

This responds to a letter dated November 8, 2012, and subsequent information,
submitted on behalf of P by P’s authorized representative, requesting that P be granted
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 states that P was formed as a limited liability company under the laws
of State and is treated as a partnership for federal tax purposes. On Date 1, Q acquired
an x percent ownership interest in P. P relied on its tax advisor for tax advice. P,
however, inadvertently failed to timely make an election under § 754 for the taxable year
ending Date 2. P represents that it has acted reasonably and in good faith, that
granting relief will not prejudice the interests of the government, and that it is not using
hindsight in making the election.

Section 754 provides that if a partnership files an election, in accordance with the

PLR-148391-12 2

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
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 301.91000-1(b) defines
the term “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 301.9100-3 provides that 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. 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 the taxpayer acted reasonably and in good faith, and that 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, P 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. The election
should be made in a written statement filed with the appropriate service center for
association with P’s return for the taxable year ending Date 2. A copy of this letter
should be attached to the statement filed.

As a condition for this late election relief, P and any affected taxpayers must file, within
120 days of the date of this letter, any amended federal income tax returns for the
taxable year ending Date 2 and subsequent years consistent with P having made a
timely § 754 election effective for the taxable year ending Date 2. Copies of this letter
should be attached to any such amended returns.

Except as specifically set forth above, no opinion is expressed concerning the federal

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tax consequences of the facts described above under any other provision of the Internal
Revenue Code and the regulations thereunder. Specifically, no opinion is expressed or
implied concerning whether P was or is a partnership for federal tax purposes.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to P's authorized representative.

                                    Sincerely,

                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)



                              By: ____________________________
                                  Melissa C. Liquerman
                                  Chief, Branch 2
                                  (Passthroughs & Special Industries)

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