Partnership receives 120 days to make a late Section 754 election

Plain-English summary

A limited liability company taxed as a partnership had a partner that was a grantor trust. After the grantor died, the partnership relied on an adviser to file a section 754 election for that year, but the adviser failed to do so. The IRS found that the partnership satisfied the reasonable, good-faith and no-prejudice standards for regulatory-election relief. It granted 120 days from the ruling date to file a written section 754 election effective for the missed year and later years, with the election sent to the appropriate service center for association with that year's return. The IRS did not rule on whether the company was otherwise a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership make a late section 754 election after its adviser failed to file it for the year of a partner's death?
• Outcome: Approved; 120 days to file the election effective for the missed year and thereafter.
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201808013 Third Party Communication: None
Release Date: 2/23/2018 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.15-00
Person To Contact:
------------------------------ ------------------------------, ID No. ------------
--------------------------------- -----------------
------------------------------ Telephone Number:
-------------------------- ----------------------
Refer Reply To:
CC:PSI:B01
PLR-118646-17
Date:
November 20, 2017

LEGEND:

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

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

Year 1 = -------

Year 2 = -------

A = -----------------------

Trust = ---------------------------------------------

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

   This responds to a letter dated April 13, 2017, and subsequent information,

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 (Code).

Facts

     The information submitted states that X was formed in Year 1 as a State limited

liability company classified as a partnership for federal tax purposes. A's grantor Trust
was a partner in X. A died during Year 2. X relied on its advisor to file an election
under § 754, however; the advisor failed to make an election under § 754 for Year 2.

PLR-118646-17 2

Law and Analysis

    Section 754 provides that if a partnership files an election, in accordance with the

regulations prescribed by the Secretary, the basis of partnership property is 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. Such an election
shall apply with respect to all distributions of property by the partnership 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, shall 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 thereof) for filing the return for that 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
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 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 making 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 (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 grant of relief will not prejudice the
interests of the government.

PLR-118646-17 3

Conclusion

   Based 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 120 days from the date of this letter to make an
election under § 754, effective for its Year 2 taxable year and thereafter. The election
should be made in a written statement filed with the appropriate service center for
association with X's Year 2 tax return. A copy of this letter should be attached to the §
754 election.

    Except as expressly provided herein, we express or imply no opinion concerning

the tax consequences of any aspect of any transaction or item discussed or referenced
in this letter. Specifically, we express or imply no opinion as to whether X is a
partnership for federal tax purposes.

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

this letter to X's authorized representatives.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of

the Code provides that it may not be used or cited as precedent.

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


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

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