Partnership gets 120 days to file a section 754 election

Plain-English summary

A limited liability company treated as a partnership underwent a technical termination after partnership interests were transferred. Its timely return reflected basis adjustments as though a section 754 election were effective, but the election itself was not validly filed. The partnership said its tax professional prepared the election but did not advise it to sign the document. The IRS accepted the representations that the partnership acted reasonably and in good faith, that relief would not prejudice the government, and that the request did not rely on hindsight. It granted 120 days to file the written election with the service center and required a copy of the ruling to be attached.

Ruling snapshot

• Question: Could the partnership receive extra time to make a section 754 basis-adjustment election?
• Outcome: approved, with 120 days to file the election
• Key authorities: IRC §§ 708(b)(1)(B), 734(b), 743(b), 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201717038                                              Third Party Communication: None
Release Date: 4/28/2017                                        Date of Communication: Not Applicable
Index Numbers: 754.00-00, 9100.15-00
                                                               Person To Contact:
------------------------------------------------------------   -------------------, ID No. ------------------
------------------------------------------------------         Telephone Number:
----------------------------                                   ----------------------
-----------------------------------                            Refer Reply To:
----------------------------------                             CC:PSI:B01
                                                               PLR-137791-16
                                                               Date:
                                                               January 10, 2017


LEGEND

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

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

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

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

Year              =        -------

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


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

This is in response to a letter dated December 2, 2016, 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

According to the information submitted, X was formed as a limited liability company
under the laws of State on Date 1. X is treated as a partnership for federal tax
purposes.
PLR-137791-16                                 2


On Date 2, interests in X were transferred causing X to undergo a technical termination
under section 708(b)(1)(B). X’s partnership return for Year was timely filed and X’s
partnership return for Year did reflect adjustments to the basis of the partnership
property as if a § 754 election were in effect. However, X inadvertently failed to file a
timely section 754 election with the return for its taxable year ending on Date 2.

X represents that it relied upon a tax professional when preparing the tax return for
Year. X represents that its tax professional prepared a 754 election but that it was not
advised by its tax professional to sign the 754 election. X further represents that around
Date 3, X became aware of the error with making the section 754 election for its taxable
year ending Date 2.

X further 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 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 Internal Revenue
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
301.9100-1(a). 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.
PLR-137791-16                                  3


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. Section 301-9100-3(a).

CONCLUSION

Based solely 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 one hundred-twenty (120) days from the date of this
letter to make a § 754 election for Year. The election should be made in a written
statement filed with the applicable service center for association with X’s tax return. A
copy of this letter should be attached to the statement filed.

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.

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.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

                                       Sincerely,


                                       Donna Young
                                       Acting Associate Chief Counsel
                                       (Passthroughs & Special Industries)


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


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

cc: