Partnership receives 120 days to make a section 754 election

Plain-English summary

A limited liability company taxed as a partnership made a liquidating distribution to a retiring member. It timely filed its partnership return but inadvertently omitted the section 754 election to adjust the basis of partnership property. The partnership represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days from the letter date to file the election statement for the affected tax year and later years.

Ruling snapshot

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

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201718013 Third Party Communication: None
Release Date: 5/5/2017 Date of Communication: Not Applicable
Index Numbers: 754.02-00, 9100.15-00
Person To Contact:
--------------------------- -----------------------, ID #------------------
------------------------------ Telephone Number:
---------------------------------------------- ----------------------
---------------------------------- Refer Reply To:
CC:PSI:B03
PLR-123327-16
Date: January 17, 2017

LEGEND

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

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

D1 = ---------------------------

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

  This letter responds to a letter dated July 15, 2016, 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).

                                            FACTS

    The information submitted states that X is a State limited liability company

classified as a partnership for federal tax purposes. During X’s taxable year ended D1,
X made a liquidating distribution to a retiring member in exchange for the member’s
interest. X’s return for its taxable year ended D1 was timely filed, but inadvertently a
§ 754 election to adjust the basis of partnership property was not filed with the return.

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

relief will not prejudice the interests of the government.
PLR-123327-16 2

                        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(a)-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) provides that the term “regulatory
election” includes 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 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 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.

                        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
make a § 754 election for its taxable year ended D1 and thereafter. The election should
PLR-123327-16 3

be made in a written statement filed with the applicable service center for association
with X's return for the taxable year ended D1. A copy of this letter should be attached to
the statement filed.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

    Under a power of attorney on file with this office, we are sending a copy of this

letter to X’s authorized representative.

   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:_/s/____________________________
                                         Mary Beth Carchia
                                         Senior Technician Reviewer, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)

Enclosures (2)

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

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