Partnership received 120 days for late section 754 election

Plain-English summary

A partnership wanted a section 754 election to apply after one of its partners died. It relied on an adviser to file the election, but the adviser failed to do so with the partnership return. The IRS found that the partnership met the reasonable-cause and good-faith standards for regulatory election relief. It granted 120 days from the ruling date to file a written section 754 election effective for the requested year and later years, with a copy of the ruling attached. The IRS did not decide whether the entity otherwise qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: Could a partnership make a late section 754 election after its adviser failed to file it?
• Outcome: Approved, with 120 days to file the election
• 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: 201523007 Third Party Communication: None
Release Date: 6/5/2015 Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
---------------------------------------------------- -----------------------, ID No. --------------
----------------------- Telephone Number:
-------------------- ----------------------
------------------------------ Refer Reply To:
CC:PSI:B01
PLR-135591-14
Date:
February 13, 2015

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

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

Date1 = ----------------------

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

Year = -------

Dear -----------------

This responds to a letter dated August 20, 2014, and subsequent information, 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 partnership under State law on Date 1 and is treated as partnership
for federal tax purposes. Y, a partner in X, died in Year. X relied on its advisor to file an
election under § 754, however; the advisor failed to make an election under § 754 for
Year.

LAW AND ANALYSIS

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 to all transfers
PLR-135591-14 2

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 thereof)
for filing the return for that 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
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 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 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.
PLR-135591-14 3

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: Faith P. Colson
                                 Faith P. Colson
                                 Senior Counsel, Branch 1
                                 (Passthroughs & Special Industries)

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