Partnership received 120 days to make a late Section 754 election

Plain-English summary

A limited partnership failed to include a Section 754 election with its return for the year in which one partner sold its interest to another party. The partnership represented that the omission was inadvertent, that it had acted reasonably and in good faith, and that relief would not harm the government's interests. The IRS found that the requirements for discretionary late-election relief were satisfied. It granted the partnership 120 days to file a signed election statement for association with the original return.

Ruling snapshot

• Question: Could the partnership receive an extension to make a late Section 754 basis-adjustment election?
• Outcome: Approved, with 120 days to file the election statement.
• Key authorities: IRC §§ 734(b), 743(b), 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: 201818007
Third Party Communication: None
Release Date: 5/4/2018
Date of Communication: Not Applicable
Index Number: 9100.15-00, 754.02-00
Person To Contact:
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Refer Reply To:
CC:PSI:B03
PLR-125729-17
Date:
January 24, 2018

LEGEND

X = -------------------------------------------------------------------------------------------------
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Y = -------------------------------------------------------------------------------------------------
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A = -------------------------------------------------------------------------------------------------
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State = --------------

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

Year = -------

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

This letter responds to a letter dated August 18, 2017, and subsequent correspondence, submitted on behalf of X, by its 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 organized on Date 1 as a limited partnership under State law. X is treated as a partnership for federal tax purposes.
PLR-125729-17
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During Year, Y sold its interest in X to A, but an election under § 754 to adjust basis of partnership property was inadvertently 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.

LAW

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 signed 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.
PLR-125729-17
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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 Year. The election should be made in a signed written statement filed with the appropriate service center for association with X’s Year tax return. A copy of this letter should be attached to the statement filed.

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 no opinion as to whether or not 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.

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.

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

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

By: ________ Caroline E. Hay
Assistant to the Branch Chief, 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