Lower-tier partnership receives § 754 election extension

Plain-English summary

A lower-tier partnership was partly owned by an upper-tier partnership whose partner died. To obtain the optional basis adjustment at both tiers, both partnerships needed § 754 elections, but the lower-tier partnership’s adviser failed to make its election for the relevant year. The IRS found the relief standards satisfied and granted the lower-tier partnership 120 days to file a written election effective for that year and later years. It did not decide whether the entity was otherwise a partnership for federal tax purposes.

Ruling snapshot

• Request: Extend the time for a lower-tier partnership to elect optional basis adjustments under § 754
• Outcome: Approved; 120 days to file the election effective for the specified year and thereafter
• Key authorities: I.R.C. §§ 734, 743, 754; Treas. Reg. § 1.754-1(b); Rev. Rul. 87-115

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201544008                                            Third Party Communication: None
Release Date: 10/30/2015                                     Date of Communication: Not Applicable
Index Number: 9100.15-00
                                                             Person To Contact:
-------------------------------------                        -----------------------, ID No. --------------
-----------------------------------------                    Telephone Number:
------------------------------------                         ----------------------
----------------------------------                           Refer Reply To:
                                                             CC:PSI:B01
                                                             PLR-104224-15
                                                             Date:
                                                             July 13, 2015




P2           = ------------------------------------------------------------------------------------------------------
               -----------------------

P1           = ------------------------------------------------------------------------------------------------------
               ----------------------

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

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

q            = ----

A            = -------------------------

Trust        = ------------------------------------------------------------------------------------------------------
               ----------------------

Year         = -------

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

This responds to a letter dated January 16, 2015, and subsequent information,
submitted on behalf of P2 by P2’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

The information submitted states that P2 was formed on Date 1 as a State limited
liability company classified as a partnership for federal tax purposes. P1, a partnership,
owns a q% interest in P2.

PLR-104224-15                                 2


A’s grantor Trust was a partner in P1. A died during Year. P2 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
regulations prescribed by the Secretary, the basis of partnership property shall be
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 such election was filed and all subsequent taxable years.

The optional adjustment to basis under § 754 will be available to both an upper-tier
partnership (UTP) and a lower-tier partnership (LTP) when there is a sale or exchange
of a partnership interest or the death of a partner in UTP, and both UTP and LTP have
made an election under § 754 to adjust the basis of partnership property on a sale or
exchange of a partnership interest or on the death of a partner. Rev. Rul. 87-115, 1987-
2 C.B. 163.

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 such 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

PLR-104224-15                                 3

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, P2 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
P2’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 P2 is a partnership for
federal tax purposes.

Pursuant to a power of attorney on file with this office, we are sending a copy of this
letter to P2’s authorized representatives.

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.


                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)



                                  By: ____________________________
                                      David R. Haglund
                                      Chief, Branch 1
                                      (Passthroughs & Special Industries)


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

cc: