Partnership receives 120 days to make a section 754 election after a partner's death

Plain-English summary

A limited liability company treated as a partnership failed to make an IRC § 754 election for the year in which a partner died. The partnership's advisor had not informed it that the election was available. A § 754 election permits inside-basis adjustments under §§ 734 and 743 for distributions and transfers of partnership interests and normally must accompany a timely partnership return. The IRS found that the partnership satisfied the reasonable-cause and government-prejudice standards for regulatory-election relief. It granted 120 days to file a written election effective for the transfer year and later years. The IRS expressed no view on whether the entity otherwise qualifies as a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership receive an extension to make an IRC § 754 election effective for the year a partner died?
• Outcome: Approved
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201443011
Third Party Communication: None
Release Date: 10/24/2014
Date of Communication: Not Applicable
Index Numbers: 9100.15-00, 754.00-00,
754.02-00
Person To Contact:
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Refer Reply To:
CC:PSI:03
PLR-151445-13
Date:
June 24, 2014

LEGEND

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

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

Y = ---------------------

Year = -------

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

This letter responds to a letter dated December 6, 2013, 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 (Code).

FACTS

X was formed as a limited liability company under State law on Date 1 and is treated as a partnership for federal tax purposes. Y, a partner in X, died in Year. X’s advisor did not inform X as to the availability of an election under § 754. Therefore, X failed to make an election under § 754 for Year.

LAW AND ANALYSIS

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Section 754 provides that if a partnership files an election, in accordance with the regulations prescribed by the Secretary, the basis of partnership property is 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 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, is 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(a)-1(e) (including extensions thereof) for filing the return for that taxable year.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time 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 the term “regulatory election” as including an election whose due date is prescribed by a regulation published in the Federal Register.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election.

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

Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. Requests for relief under § 301.9100-3 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 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 of 120 days from the date of this letter to make an election under § 754, effective for its Year taxable year and thereafter. The election

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should be made in a written statement filed with the appropriate service center for association with X’s Year tax 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 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) of the Code 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: _____
Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2):

Copy of this letter
Copy for § 6110 purposes