Partnership receives 120 days to make a late section 754 election

Plain-English summary

A limited liability company taxed as a partnership intended to elect under section 754 to adjust the basis of partnership property. It inadvertently omitted a properly executed election from the return for the relevant tax year. The partnership and all affected partners filed that return and later returns consistently with the election having been made. The partnership 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 granted 120 days to file the written section 754 election with the appropriate service center.

Ruling snapshot

• Question: Could the partnership obtain extra time to file its omitted section 754 basis-adjustment election?
• Outcome: approved, with a 120-day extension
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201705008
Third Party Communication: None
Release Date: 2/3/2017
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-128163-16
Date:
October 06, 2016

LEGEND

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

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

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

This responds to the letter dated September 2, 2016, 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 partners have also filed their returns consistent with the election having been made.
PLR-128163-16
2

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. As a result, X is granted an extension of time of 120 days from the date of this letter to
PLR-128163-16
3

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,

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

By: David R. Haglund
David R. Haglund
Chief, Branch 1
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)

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

cc: