Partnership receives 120 days to make a late section 754 election

Plain-English summary

A limited partnership failed to make a timely IRC § 754 election for the year in which one of its partners died. The election would allow basis adjustments to partnership property following distributions or transfers of partnership interests. The partnership represented that it acted reasonably and in good faith and that late relief would not prejudice the government. The IRS granted 120 days to file the election under Treas. Reg. § 301.9100-3. The relief requires the partnership and its partners to reconstruct all basis and depreciation consequences as though the election had been timely, even for years whose limitation periods have expired.

Ruling snapshot

• Question: Should the partnership receive additional time to make a section 754 election for the year of a partner's death?
• Outcome: Approved, with 120 days from the ruling date to file
• 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: 201631009 Third Party Communication: None
Release Date: 7/29/2016 Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.15-00
Person To Contact:
---------------------------------------------------- ---------------------------, ID No. ---------------

-------------------------- Telephone Number:
------------------------------------- ----------------------
------------------------------ Refer Reply To:
CC:PSI:B03
PLR-135958-15

                                                           Date:
                                                           April 25, 2016


    LEGEND

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

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

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

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

     Year      =     -------

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

  This letter responds to a letter dated October 23, 2015, and subsequent

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).

    The information submitted states that X is a State limited partnership. A, a

partner of X, died on Date. X inadvertently failed to make a timely election under § 754
for the year of A’s death (Year).

    X represents that it has acted reasonably and in good faith, and that granting

relief will not prejudice the interests of the Government.

PLR-135958-15 2

   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 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 301.9100-2 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.

   Section 301.9100-3(a) provides that requests for relief under § 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.

   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.
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 Year taxable year and thereafter. The election should be
made in a written statement filed with the appropriate service center for association with
X’s Year tax return. A copy of this letter should be attached to the statement filed.

   This ruling is contingent on X adjusting the basis of its properties to reflect any

§ 734(b) or § 743(b) adjustments that would have been made if the § 754 election had
been timely made. These basis adjustments must reflect any additional depreciation

PLR-135958-15 3

that would have been allowable if the § 754 election had been timely made, regardless
of whether the statutory period of limitation on assessment or filing a claim for refund
has expired for any year subject to this grant of late relief. Any depreciation deduction
allowable for an open year is to be computed based upon the remaining useful life and
using property basis as adjusted by the greater of any depreciation deduction allowed or
allowable in any prior year had the § 754 election been timely made. Additionally, the
partners of X must adjust the basis of their interests in X to reflect what that basis would
be if the § 754 election had been timely made, regardless of whether the statutory
period of limitation on assessment or filing a claim for refund has expired for any year
subject to this grant of late relief. Specifically, the partners of X must reduce the basis of
their interests in X in the amount of any additional depreciation that would have been
allowable if the § 754 election had been timely made.

  Except as specifically ruled upon above, we express or imply no opinion

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) 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, we are sending a

copy of this letter ruling to your authorized representatives.

                                                 Sincerely,

                                                 Associate Chief Counsel
                                                 (Passthroughs and Special Industries)


                                       By:       ________________________________
                                                 Mary Beth Carchia
                                                 Senior Technician Reviewer, Branch 3
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)

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