Partnership receives more time to make a section 754 election

Plain-English summary

A limited liability company became a partnership for federal tax purposes when an owner's interest passed to a trust at death. The entity was eligible to elect under section 754 to adjust the basis of partnership property, but it did not make the election on time. It 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 granted 120 days to file a written section 754 election effective for the relevant tax year and later years.

Ruling snapshot

• Question: Could the entity receive more time to make a section 754 election after becoming a partnership?
• Outcome: Approved, with 120 days to file the election.
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201611008 Third Party Communication: None
Release Date: 3/11/2016 Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
9100.00-00 Person To Contact:
---------------------------, ID No. ---------------
----------------------------------------------------- -----------------
------------------------- Telephone Number:
----------------- ----------------------
-------------------------------- Refer Reply To:
CC:PSI:B01
PLR-123910-15
Date:
December 10, 2015

Legend

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

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

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

     Date              =        ---------------------------

     Year              =        -------

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

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

  This letter responds to a letter dated July 2, 2015, and subsequent

correspondence, submitted on behalf of X by its 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

  X was formed as a limited liability company under the laws of State. Prior to

Date, X was treated as a disregarded entity for Federal tax purposes. On Date, as a
PLR-123910-15 2

result of A’s death, A’s interest in X passed to Trust. As a result of the transfer, X
became a partnership for Federal tax purposes and was qualified to make an election
under § 754 for the year of A’s death.

    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 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 interest in the partnership during the taxable year with
respect to which the election was filed and all subsequent tax 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, 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 that 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 Code, except
subtitles E,G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as
including an election whose deadline is prescribed by a regulation published in the
Federal Register.

    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.

    Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3

will be granted when the taxpayer provides the 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 the grant of relief will not prejudice the
interests of the Government.

                                    Conclusion

PLR-123910-15 3

   Based solely upon 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 following 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.
A copy of this letter should be attached to the § 754 election. A copy is enclosed for that
purpose.

   Except as expressly set forth above, no opinion is expressed or implied

concerning the federal tax consequences of the facts discussed above under any other
provision of the Code. Specifically, we express no opinion as to whether or not X is a
partnership for federal tax purposes.

  This ruling is directed only to the taxpayers 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, a copy of this

letter is being sent to your authorized representative.

                                    Sincerely,


                                    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
~~~