LLC receives 120 days for a late section 754 election

Plain-English summary

Ownership interests in an LLC were transferred during a tax year, but the LLC's adviser did not tell it that an IRC § 754 election was available. The LLC therefore missed the deadline to elect basis adjustments for transfers of partnership interests and distributions. The IRS found that the LLC met the standards for discretionary relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3. It granted 120 days from the letter date to make the election effective for that year and later years. The election statement had to be filed with the service center for association with the LLC's return, with a copy of the ruling attached.

Ruling snapshot

• Question: Could the LLC make a late IRC § 754 election after transfers of ownership interests?
• Outcome: Approved, with 120 days to file the election
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201505003 Third Party Communication: None
Release Date: 1/30/2015 Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
------------------------------------------------------- --------------------, ID No. ------------------
------------------------------------------ Telephone Number:
----------------------------------- -------- --------------
------------------------ Refer Reply To:
----------------------------------- CC:PSI:03
-------------------------------------------- PLR-114632-14
Date:
August 05, 2014

X = ---------------------------

State = --------------
Year = -------

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

  This responds to a letter dated March 13, 2014, and subsequent

correspondence, submitted on behalf of X, requesting that the Service grant X 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 submitted states that X was a State limited liability company.

Interests in X were transferred during Year. However, at that time, X’s tax advisor did
not advise X of the availability to make 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 filed not later than the time prescribed by § 1.6031-1(e) (including

PLR-114632-14

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.

    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 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.

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     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to X's authorized representative.

                                               Sincerely,


                                               Associate Chief Counsel
                                               (Passthroughs and Special Industries)




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

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