Partnership LLC receives a late section 754 election extension

Plain-English summary

A partner died, but the tax advisers for an LLC taxed as a partnership did not tell it that an IRC § 754 election was available. The LLC therefore failed to elect basis adjustments for transfers of partnership interests and distributions by the deadline. 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 the year of the partner's death and later years. The LLC had to calculate the related basis adjustments as though the election had been timely made and file the election statement with the service center handling that year's return.

Ruling snapshot

• Question: Could an LLC taxed as a partnership make a late IRC § 754 election after a partner's death?
• Outcome: Approved, with 120 days to file the election
• Key authorities: IRC §§ 734, 743, 754, and 755; Treas. Reg. §§ 1.754-1(b), 1.755-1(c), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201505022
Third Party Communication: None
Release Date: 1/30/2015
Date of Communication: Not Applicable
Index Number: 9100.00-00, 754.02-00
Person To Contact:
------------------------------------------------- -----------------------, ID No. -------------------
-------------------------------------
---------------------------------------------------
--------------------------------
Telephone Number:
--------------------------------
----------------------
Refer Reply To:
CC:PSI:B01
PLR-122991-14
Date:
September 29, 2014

Legend

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

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

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

Decedent = -------------------

Year = -------

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

This responds to a letter dated June 4, 2014, and subsequent correspondence submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to make an election under § 754 of the Internal Revenue Code.

The information submitted states that X was formed as a limited liability company, taxed as a partnership for federal income tax purposes, in State on Date 1. Decedent was a partner in X. Decedent died in Year. However, at that time, X's tax advisors did not advise X of the availability of 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

PLR-122991-14
2

§ 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 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.

Section 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant and 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. X must calculate the adjustments under § 734(b) and (c), and § 1.755-1(c), as if X had timely made the § 754 election and allocated the increase in basis among the properties held by X at that time. 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.

PLR-122991-14
3

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. In accordance with the power of attorney on file with this office, copy of this letter is being sent to X's authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: David R. Haglund

David R. Haglund
Branch Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)