Partnership received extra time for section 754 election

Plain-English summary

A limited liability company taxed as a partnership failed to file a section 754 election for a year in which ownership interests were bought and sold. The partnership represented that the omission was inadvertent, it acted reasonably and in good faith, and relief would not prejudice the government. The IRS granted a 120-day extension to make the election effective for the missed year and later years. The partnership had to file the written election with the appropriate service center and attach a copy of the ruling.

Ruling snapshot

• Question: Could the partnership receive extra time to make its section 754 basis-adjustment election?
• Outcome: Approved, with 120 days to file the election
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201525008 Third Party Communication: None
Release Date: 6/19/2015 Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.15-00
Person To Contact:
------------------------------ -----------------------------, ID No. -------------
-------------------------------- -----------------
--------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:01
PLR-143960-14
Date:
March 11, 2015

Legend
X = ------------------------------------------------------------------------------------------------------
---------------------------
State = --------------
Year = -------

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

  This responds to a letter dated November 19, 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.

                                              FACTS

    According to the information submitted, X was formed as a limited liability

company under the laws of State and is classified as a partnership for federal tax
purposes. In Year, interests in X were purchased and sold. X inadvertently failed to
timely file a § 754 election for Year. X represents that it acted reasonably and in good
faith, that granting relief will not prejudice the interest of the government, and that it is
not using hindsight in making this election.

                                       LAW & ANALYSIS

   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.
PLR-143960-14 2

    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.

                                  CONCLUSION

   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.
PLR-143960-14 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 representatives.

                                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)

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