Partnership receives 120-day extension for section 754 election

Plain-English summary

An LLC taxed as a partnership intended to elect under section 754 to adjust the basis of partnership property but inadvertently failed to file a properly executed election with its return. The partnership and all affected partners had filed their returns consistently with the election having been made. The partnership 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 section 301.9100-3 requirements satisfied and granted 120 days from the ruling date to file the written section 754 election with the appropriate service center.

Ruling snapshot

• Question: Should the partnership receive an extension to file its intended section 754 election?
• Outcome: Approved; the partnership received 120 days from the letter date to make the election.
• 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: 201605007                                              Third Party Communication: None
Release Date: 1/29/2016                                        Date of Communication: Not Applicable
Index Number: 9100.15-00, 754.02-00
                                                               Person To Contact:
-------------------------------                                -----------------------------,
---------------------------------                              ID No. ------------------
------------------------------------                           Telephone Number:
-----------------------------                                  ----------------------
---------------------------                                    Refer Reply To:
 ------------------------------------                          CC:PSI:B01
                                                               PLR-122159-15
                                                               Date:
                                                               October 28, 2015




LEGEND

X        =        ---------------------------------
---------------------------------------------------------------------------------------------------------------------
State =---------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Date = --------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------




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

      This responds to the letter dated June 25, 2015, and related correspondence,
submitted on behalf of X, 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 X was formed as a limited liability company
under the laws of State and that X was treated as a partnership for Federal tax
purposes. X intended to file an election under § 754 to adjust the basis of partnership
property with its return for its taxable year ended on Date. However, X inadvertently
failed to file a properly executed § 754 election.

      X represents that it has filed returns for its taxable year ended on Date and
subsequent years consistent with the election having been made, and that all affected
PLR-122159-15                                 2

partners have also filed their returns consistent with the election having been made.
Further, X 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 statement must (i) set forth the name and address of the partnership making
the election, (ii) be signed by any one of the partners, and (iii) contain a declaration that
the partnership elects under § 754 to apply the provisions of §§ 734(b) and 743(b).

        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 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, or a revenue ruling, revenue procedure, announcement, or notice
published in the Internal Revenue Bulletin.

        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 301.9100-2 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. 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 upon the facts submitted and the representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
PLR-122159-15                                   3

As a result, X is granted an extension of time of 120 days from the date of this letter to
make a § 754 election for its taxable year ended on Date. The election should be made
in a written statement filed with the appropriate service center. A copy of this letter
should be attached to the § 754 election. A copy is enclosed for that purpose.

      Except as specifically ruled upon above, no opinion is expressed or implied
concerning the tax consequences of any facts discussed or referenced in this letter.

      This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

        In accordance with the Power of Attorney on file with this office, copies of this
letter ruling will be sent to your authorized representatives.


                                   Sincerely,




                                   Laura C. Fields
                                   Laura C. Fields
                                   Senior Technician Reviewer, Branch 1
                                   Office of Associate Chief Counsel
                                   (Passthroughs & Special Industries)



Enclosures (2)

       Copy of this letter
       Copy of this letter for section 6110 purposes