Partnership receives 120 days to make section 754 election

Plain-English summary

A partnership timely filed its return for a year in which ownership interests were transferred but did not make a section 754 election or reflect the related basis adjustments. The partnership represented that it relied on its tax adviser and did not know the election was available. It also represented that it acted reasonably and in good faith, that relief would not prejudice the government, and that it was not using hindsight. The IRS found the regulatory-relief requirements satisfied and granted 120 days to file the election statement for association with the partnership's return.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year in which interests were transferred?
• Outcome: Approved, with 120 days to file the election statement
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201603018 Third Party Communication: None
Release Date: 1/15/2016 Date of Communication: Not Applicable
Index Numbers: 754.00-00, 9100.15-00
Person To Contact:
--------------------------------------------------- ------------------, ID No. ------------------
-------------------------------------- Telephone Number:
------------------------------------------------- ----------------------
------------------------------------------------- Refer Reply To:
--------------------------------- CC:PSI:B01
PLR-115769-15
Date:
October 05, 2015

LEGEND

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

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

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

Date 3 = ---------------------------

Year = -------

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

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

This is in response to a letter dated May 1, 2015, and supplemental correspondence,
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.

FACTS

According to the information submitted, X was formed as a limited liability company
under the laws of State on Date 1. X is treated as a partnership for federal tax
purposes.
PLR-115769-15 2

During Year, interests in X were transferred. X’s partnership return for Year was timely
filed. However, X’s partnership return for Year did not reflect adjustments to the basis
of the partnership property as if a § 754 election were in effect.

X represents that it relied upon its tax advisor when preparing the tax return for Year. X
represents that it was unaware of the availability of a section 754 election. X further
represents that around Date 2, X became aware of the possibility of making a section
754 election and its failure to timely make the election with its return for its taxable year
ending Date 3.

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.

LAW AND ANALYSIS

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) for filing
the return for such taxable year.

Under § 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 six 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 that the Commissioner
will use to determine whether to grant an extension of time to make an election. Section
301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making
certain elections. Section 301.9100-3 provides rules for requesting extensions of time
for regulatory elections that do not meet the requirements of § 301.9100-2.
PLR-115769-15 3

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. Section 301-9100-3(a).

CONCLUSION

Based solely 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 one hundred twenty (120) days from the date of this
letter to make a § 754 election for Year. The election should be made in a written
statement filed with the applicable service center for association with X’s tax return for
its taxable year ending Date 3. A copy of this letter should be attached to the statement
filed.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

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.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representatives.

                                   Sincerely,



                                   Curt G. Wilson
                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                              By: Joy C. Spies
                                  Joy C. Spies
                                  Senior Technician Reviewer, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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