Partnership gets 120 days for late section 754 election

Plain-English summary

A limited liability company taxed as a partnership failed to make a timely § 754 election for the year one of its partners died. The election allows basis adjustments when partnership property is distributed or a partnership interest is transferred. The partnership represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days to file the election for the death year and later years. The relief required the partnership and its partners to file all consistent returns for open years within the same period.

Ruling snapshot

• Question: Could the partnership make a late § 754 election for the taxable year in which a partner died?
• Outcome: Approved, with a 120-day election and consistent-return deadline
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through -3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201448002
Third Party Communication: None
Release Date: 11/28/2014
Date of Communication: Not Applicable
Index Number: 9100.15-00, 754.02-00
Person To Contact:
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Telephone Number:
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------------------------------------------ Refer Reply To:
CC:PSI:B03
PLR-107441-14
Date:
August 11, 2014

LEGEND

X = -------------------------------
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A = -----------------

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

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

Year = ------

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

This responds to the letter dated February 21, 2014, and related correspondence, submitted on behalf of X, 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”).

The information submitted states that X was formed as a limited liability company under the laws of State and treated as a partnership for federal tax purposes. A, a partner of X, died on Date. X inadvertently failed to make a timely election under § 754 for the year of A’s death (Year).

X represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that granting relief will not prejudice the interests of the government.

Section 754 provides that a partnership may elect to adjust the basis of partnership property when there is a distribution of property or a transfer of a partnership interest. An election under § 754 applies with respect to all distributions of
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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, must 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) for filing the return for such 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 that the Commissioner will use to determine whether to grant an extension of time to make an election. § 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides rules for requesting extensions of time for 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 to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. § 301.9100-3(a).

Based solely upon 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 a § 754 election for its Year taxable year and thereafter. The election should be made in a written statement filed with the applicable service center for association with X’s return. A copy of this letter should be attached to the statement filed.

This ruling is contingent on X and its partners filing within 120 days of this letter all required returns for all open years consistent with the requested relief. A copy of this letter should be attached to any such amended returns.

Except as specifically ruled upon above, no opinion is expressed or implied concerning the tax consequences of any facts discussed or referenced in this letter.
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This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) 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 ruling will be sent to your authorized representative.

Sincerely,

Bradford R. Poston
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)

Copy of this letter
Copy of this letter for section 6110 purposes

cc: