Partnership receives 120 days to make late section 754 election

Plain-English summary

A limited liability company treated as a partnership intended to make an IRC § 754 election after one owner transferred an interest to another person. The partnership inadvertently omitted the election from its return but reported that year and all later years consistently with the election having been made. It represented that it acted reasonably and in good faith, was not using hindsight, and would not prejudice the government. The IRS found the regulatory-relief requirements satisfied and granted 120 days to file the written election with the appropriate service center. The election would apply to the specified tax year and later years.

Ruling snapshot

• Question: Could the partnership make a late section 754 election after inadvertently omitting it from the return for the year of an ownership transfer?
• Outcome: Approved; a 120-day extension was granted
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201508003
Third Party Communication: None
Release Date: 2/20/2015
Date of Communication: Not Applicable
Index Numbers: 754.02-00, 9100.15-00
Person To Contact:
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CC:PSI:B03
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PLR-119989-14
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Date:
October 21, 2014

LEGEND

X = ------------------------------------------------------------------------------------------------
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Y = ------------------------------------------------------------------------------------------------
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Z = ------------------------------------------------------------------------------------------------
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State = ------------

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

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

Year = ------

n = ---

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

This letter responds to a letter dated May 5, 2014, 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.
PLR-119989-14
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FACTS

X is a State limited liability company formed on Date 1. X is treated as a partnership for federal tax purposes. During Year, Y transferred a n% interest in X to Z for consideration. X represents that it intended to file a § 754 election to adjust the basis of partnership property with its taxable year ending Date 2 return, but inadvertently failed to file the election.

X further 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. X represents that it has filed returns for Year and all subsequent years consistent with the election having been made.

LAW AND ANALYSIS

Section 754 provides that if a partnership files an election, in accordance with regulations prescribed by the Secretary, the basis of partnership property shall be 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 such election was filed and all subsequent taxable years.

Section 1.754-1(b) of the Income Tax Regulations provides, in part, 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 such taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3, 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 a regulatory election to include an election whose due date is prescribed by a regulation published in the Federal Register.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions 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 (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice the interests of the Government.
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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 taxable year ending Date 2 and thereafter. The election should be made in a written statement filed with the appropriate service center for association with X’s return for its taxable year ending Date 2. 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 copies of this letter to X’s authorized representatives.

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.

This ruling 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:/s/______
Holly Porter
Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

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

cc: