Upper-tier partnership receives 120 days to make a late Section 754 election

Plain-English summary

An upper-tier partnership sought extra time to make a section 754 election after one of its partners died. The upper-tier partnership and a lower-tier partnership timely filed their returns, but an adviser inadvertently failed to include the election. Both partnerships represented that they acted reasonably and in good faith, were not using hindsight, and would not prejudice the government's interests. The IRS concluded that the requirements of Treasury Regulations sections 301.9100-1 and 301.9100-3 were satisfied. It granted the upper-tier partnership 120 days from the ruling date to file the election for the affected tax year and later years.

Ruling snapshot

• Question: Could the upper-tier partnership receive an extension to make a late section 754 election after a partner's death?
• Outcome: Approved: 120 days from the letter date to file the election.
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3; Rev. Rul. 87-115.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201811011 Third Party Communication: None
Release Date: 3/16/2018 Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00
Person To Contact:
--------------------------- - -------------- --------------------, ID No. ------------------
------------------------------------------------- Telephone Number:
------------------------- --------------------
--------------------------------- Refer Reply To:
CC:PSI:01
PLR-127197-17
Date:
December 08, 2017

Legend

P1 = --------------------------------------------------

P2 = ---------------------------

State 1 = ------------------

State 2 =------------------

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

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

Q = ------

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

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

Year = --------

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

This letter responds to a letter dated August 29, 2017, and subsequent correspondence
submitted on behalf of P1, requesting an extension of time under § 301.9100-3 of the

PLR-127197-17 2

Procedure and Administration Regulations to file an election under § 754 of the Internal
Revenue Code (Code).

FACTS

The information submitted states that P1 was formed on Date 1 under the laws of
State 1 as a limited partnership classified as a partnership for federal tax purposes. P2
was formed on Date 2 under the laws of State 2 as a limited liability company classified
as a partnership for federal tax purposes. P1 owns a Q% interest in P2.

A owned a limited partnership interest in P1 through Trust, a grantor trust. A died during
Year. P1 and P2‘s return was timely filed for Year, but a § 754 election to adjust the
basis of P1’s property was inadvertently not filed with the return. P1 and P2 relied on its
advisor to file an election under § 754, however, the advisor failed to make an election
under § 754 for Year.

P1 and P2 represent that they acted reasonably and in good faith, that granting relief
will not prejudice the interests of the government, and that they are not using hindsight
in making the election.

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 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 such election was filed and all subsequent taxable years.

Rev. Rul. 87-115, 1987-2 C.B. 163 provides that the optional adjustment to basis under
§ 754 will be available to both an upper-tier partnership (UTP) and a lower-tier
partnership (LTP) when there is a sale or exchange of a partnership interest or the
death of a partner in UTP, and both UTP and LTP have made an election under § 754
to adjust the basis of partnership property on a sale or exchange of a partnership
interest or on the death of a partner.

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 such taxable year.

PLR-127197-17 3

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 or a
Rev. Rule, 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 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.

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, P1 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 taxable year and thereafter. The election should be
made in a written statement filed with the appropriate service center for association with
P1’s Year 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 P1 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 P1‘s authorized representatives.

PLR-127197-17 4

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,

David R. Haglund

David R. Haglund
Branch Chief, Branch 1
(Passthroughs & Special Industries)

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

cc: