Adviser error justified late section 754 election

Plain-English summary

A partnership sought extra time to make a section 754 election after one of its members died. The partnership had relied on its tax adviser, who inadvertently failed to include the election with the return for the relevant year. The IRS found that the partnership satisfied the regulatory standards for discretionary deadline relief. It gave the partnership 120 days to file a written election effective for the missed year and later years. A section 754 election generally permits basis adjustments when partnership property is distributed or a partnership interest is transferred.

Ruling snapshot

• Question: Could the partnership make a late section 754 election after its tax adviser missed the filing deadline?
• Outcome: Approved, with 120 days to file the election
• Key authorities: IRC § 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: 201532014
Release Date: 8/7/2015

Third Party Communication: None
Date of Communication: Not Applicable

Index Number: 9100.15-00, 754.02-00

Person To Contact:

Telephone Number:

Refer Reply To:
CC:PSI:03
PLR-131162-14

Date:
February 10, 2015

LEGEND

X =
State =
Date =
A =
Year =

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

This responds to a letter dated August 7, 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.

FACTS

According to the information provided, X was formed as a limited liability
company under the laws of State and treated as a partnership for federal tax purposes.
On Date, A, a member of X, died. X relied on its tax advisor to make a timely § 754
election for Year. However, the tax advisor inadvertently failed to timely make the
election with X’s return for its taxable year ending in Year.

LAW AND ANALYSIS

PLR-131162-14

Section 754 provides that a partnership may elect to adjust the basis of
partnership property when there is a distribution of property or a transfer of a
partnership interest. An election under § 754 applies 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, must 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.

Under Section 301.9100-1(c), 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 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 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 § 301.9100-2. Requests for relief under § 301.9100-3 will be
granted when the taxpayer provides evidence to establish that the taxpayer acted
reasonably and in good faith, and that 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 tax return. A copy of this letter should be attached to the
election.

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Except as specifically set forth above, no opinion is expressed or implied
concerning the tax consequences of the facts of this case under any other provision of
the 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.

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.

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: ___
Holly A. Porter
Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: