Partnership receives 120 days to make a late section 754 election

Plain-English summary

A limited liability company treated as a partnership intended to make an IRC § 754 election after several members sold their interests, but it inadvertently omitted the election from its return. The partnership represented that it filed the relevant and later returns consistently with the election, acted reasonably and in good faith, and would not prejudice the government. The IRS concluded that the partnership satisfied the discretionary-relief standards and granted 120 days to file the written election for the requested taxable year and later years. The ruling did not decide whether the company was in fact a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership make a late election to adjust the basis of partnership property under IRC § 754?
• Outcome: Approved. The partnership received 120 days to file the election with the appropriate service center.
• Key authorities: IRC §§ 734, 743, 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: 201722013
Third Party Communication: None
Release Date: 6/2/2017
Date of Communication: Not Applicable
Index Numbers: 9100.15-00, 754.02-00
Person To Contact:
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ID No. ------------------
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Telephone Number:

Refer Reply To:
CC:PSI:B03
PLR-129487-16

Date:
LEGEND
March 02, 2017

X = -------------------------------
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State = --------------

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

Year = -------

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

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

This letter responds to a letter dated September 21, 2016, that was 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

X is a State limited liability company formed on Date 1. X is treated as a partnership for federal tax purposes. During Year, several of X’s members sold their interests in X to others.

X represents that it intended to file a § 754 election to adjust the basis of partnership property with its return for the taxable year ending Date 2, but inadvertently failed to file the election. X represents that it has filed federal tax returns for Year and all
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subsequent years consistent with the election having been made. X further represents that it has acted reasonably and in good faith, and that granting relief will not prejudice the interests of the Government.

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. 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.

CONCLUSION
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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 ending Date 2 and thereafter. The election should be made in a written statement filed with the appropriate service center for association with X’s tax return for the taxable year ending Date 2. A copy of this letter should be attached to the § 754 election.

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. Specifically, we express or imply no opinion as to whether X is a partnership for federal tax purposes.

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 representative.

This ruling 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 and Special Industries)

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

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