Partnership receives 120 days to make late section 754 election

Plain-English summary

A limited partner died, creating a transfer for which the partnership wanted a section 754 election and the related section 743(b) basis adjustment. The partnership's tax advisers neither filed the election nor told the partnership that it needed to do so. The partnership represented that the failure was inadvertent, that it acted reasonably and in good faith, and that relief would not prejudice the government. The IRS concluded that the regulatory-election relief standards were satisfied. It gave the partnership 120 days to file a written section 754 election effective for the relevant tax year and later years.

Ruling snapshot

• Question: Could the partnership make a late section 754 election after its advisers failed to file or recommend it?
• Outcome: approved
• Key authorities: IRC §§ 743(b), 754; Treas. Reg. §§ 1.754-1(b)(1), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201750011                                              Third Party Communication: None
Release Date: 12/15/2017                                       Date of Communication: Not Applicable
Index Number: 9100.15-00
                                                               Person To Contact:
------------------------------------------------------         --------------------, ID No. ------------------
------------------------------------                           Telephone Number:
-------------------------------                                -------- --------------
--------------------------------------                         Refer Reply To:
                                                               CC:PSI:03
                                                               PLR-118870-17
                                                               Date:
                                                               September 13, 2017




X                 =         -----------------------------------------
---------------------------------------------------
B                 =        ---------------------------
State             =        ----------------
D1                =        -------------------------
D2                =        ----------------------------

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

      This responds to a letter dated June 9, 2017, submitted on behalf of X,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to make an election under § 754 of the Internal Revenue
Code (Code).

                                                     FACTS

        The information submitted states that X was a limited partnership organized
under the laws of State. On D1, B, a limited partner of X, died. X’s tax advisors neither
filed an election under § 754 with respect to X nor advised X of the need to file the
election. Accordingly, X inadvertently failed to timely file a § 754 election for the taxable
year ending D2.

        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

       Section 743(b) provides, in pertinent part, that, in the case of a transfer of an
interest in a partnership by sale or exchange or upon the death of a partner, a

PLR-118870-17                             2

partnership with respect to which an election provided in § 754 is in effect, will increase
the adjusted basis of the partnership property by the excess of the basis to the
transferee partner of his interest in the partnership over his proportionate share of the
adjusted basis of the partnership property, or decrease the adjusted basis of the
partnership property by the excess of the transferee partner’s proportionate share of the
adjusted basis of the partnership property over the basis of his interest in the
partnership. Section 743(b) further provides that such increase or decrease shall
constitute an adjustment to the basis of partnership property with respect to the
transferee partner only.

       Section 754 provides, in part, that if a partnership files an election in accordance
with the regulations prescribed by the Secretary, the basis of the partnership property is
adjusted, in the case of a transfer of a partnership interest, in the manner provided in
§ 743. Such an election shall apply 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)(1) of the Income Tax Regulations provides, in part, that an
election under § 754 to adjust the basis of partnership property under § 743(b) with
respect to a transfer of an interest in a partnership, shall be made in a written statement
filed with the partnership return for the taxable year during which the 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 thereof) for filing the return for the taxable year.

       Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time to make a regulatory election, or a statutory election (but no more than
6 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 an election whose due date is prescribed by a regulation published in the
Federal Register or a revenue ruling, revenue procedure, notice, or announcement
published in the Internal Revenue Bulletin.

       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 the
election. Section 301.9100-2 provides the rules governing automatic extensions of time
for making certain elections. Section 301.9100-3 provides the standards the
Commissioner will use to determine whether to grant an extension of time for regulatory
elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a
request for relief will be granted when the taxpayer provides evidence (including
affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the
Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) the
grant of relief will not prejudice the interests of the government.

PLR-118870-17                            3

                                     CONCLUSION

        Based solely on the information 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 an election under § 754 effective for its taxable year ending on D2 and thereafter.
The election should be made in a written statement filed with the appropriate service
center for association with X’s return for its taxable year ending on D2. A copy of this
letter should be attached to the election.

       Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other provision of
the Internal Revenue Code and the regulations thereunder.

        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. 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 that not
verified any of the material submitted in support of the ruling request, it is subject to
verification on examination.

      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter to X's authorized representatives.


                                                Sincerely,



                                                Associate Chief Counsel
                                                (Passthroughs and Special Industries)



                                         By:    _______________
                                                James A. Quinn
                                                Senior Counsel, Branch 3
                                                Office of Associate Chief Counsel
                                                (Passthroughs & Special Industries)

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