A technically terminated partnership received late section 754 relief

Plain-English summary

An unrelated buyer acquired more than half of a partnership's interests, causing a technical termination under former section 708(b)(1)(B). The partnership intended to attach a section 754 election to its short-year return but failed to do so. It nevertheless adjusted the basis of partnership property and filed later returns consistently with the election having been made. The IRS found the section 301.9100-3 standards satisfied and granted 120 days to file the election for the short tax year and later years. The ruling did not determine whether the entity otherwise qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the partnership make a late section 754 election effective for the short year created by its technical termination?
• Outcome: Approved, a 120-day extension was granted
• Key authorities: Former IRC § 708(b)(1)(B); IRC §§ 734, 743, and 754; Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201624005
Release Date: 6/10/2016
Index Number: 754.02-00, 9100.15-00

--------------------------------------------                 Person To Contact:
---------------------------------------------------          --------------------------, ID No. ----------------
---------------------------------------------                -----------------
                                                             Telephone Number:
                                                             ----------------------
                                                             Refer Reply To:
                                                             CC:PSI:B03 – PLR-129340-15
                                                             Date:
                                                             February 01, 2016


LEGEND


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

Y           = -----------------------------------------------------

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

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

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

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

a           = ----


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

       This letter responds to a letter dated September 1, 2015, 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

       X was formed as a limited liability company under State law on Date 1, and has
been treated as a partnership for federal income tax purposes since Date 2. On Date 3,
                                             2
PLR-129340-15

Y, an entity unrelated to X, purchased over a% of the interests in X, resulting in X’s
technical termination under § 708(b)(1)(B). X filed a partnership return for the short
taxable year ending Date 3, and intended to file a § 754 election with that return, but
failed to do so. X, however, adjusted the basis of partnership property and filed its
subsequent tax returns consistent with the election having been made.

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 distribution of property, in the manner provided in § 734 and,
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.

        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 under the rules set forth in §§ 301.9100-2 and 301.9100-3, 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 a regulatory election to include an election
whose due date 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 extensions of time for regulatory elections that do
not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will
be granted when the taxpayer provides evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the
taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice
the interests of the Government.

CONCLUSION
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PLR-129340-15

       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, 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 taxable year ending Date 3 and thereafter. The
election should be made in a written statement filed with the appropriate service center
for association with X’s return for its taxable year ending Date 3. A copy of this letter
should be attached to the § 754 election.

       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. Specifically, we express or imply no opinion as to whether X 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 X’s authorized representative.

      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.

       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.

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                                 By: ___________________________________
                                     Holly Porter
                                     Branch Chief, Branch 3
                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)

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

cc: