Partnership received time for election after technical termination

Plain-English summary

A limited liability company taxed as a partnership underwent a technical termination under former Section 708(b)(1)(B) when one owner sold membership interests to two buyers. The partnership intended to make a Section 754 election for the tax year ending on the sale date but did not timely file the return making the election. It represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days to file the election statement effective for that tax year.

Ruling snapshot

• Question: Could the partnership make a late Section 754 election for the year of its technical termination?
• Outcome: Approved, with 120 days to file the election statement.
• Key authorities: IRC §§ 708(b)(1)(B), 734, 743, and 754; Treas. Reg. §§ 1.754-1(b)(1) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201819005 Third Party Communication: None
Release Date: 5/11/2018 Date of Communication: Not Applicable
Index Numbers: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00 Person To Contact:
-----------------------, ID No. -------------------
-------------------------------------- ---------------------------------------------------
--------------------------------------- Telephone Number:
------------------------------------------ ----------------------
--------------------------------- Refer Reply To:
CC:PSI:03
PLR-126979-17
Date:
February 13, 2018

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

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

B = -----------------

C = ----------------------------------

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

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

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

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

  This letter responds to a letter dated August 8, 2017, and subsequent

correspondence, 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

PLR-126979-17 2

   The information submitted states that X was organized on Date 1 as a State

limited liability company. X is classified as a partnership for federal tax purposes.

   On Date 2, A sold membership interests in X to B and C, resulting in a technical

termination of X under § 708(b)(1)(B). X intended to make an election under § 754 in
connection with this sale for the taxable year ended Date 2. However, X did not file a
timely return making this election.

    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, in part, 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 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 §§ 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(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 an
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.

PLR-126979-17 3

    Under § 301.9100-3, a request for relief 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 (1) the taxpayer acted reasonably and in good
faith, and (2) the grant of relief will not prejudice the interests of the Government.

                                  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 ended Date 2. 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 ended Date 2. A copy of this letter should
be attached to the statement filed.

   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 Code and the regulations thereunder. Specifically, we express no opinion as to
whether X is a partnership for federal tax purposes.

  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.

   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 to X’s authorized representatives.

                                             Sincerely,

                                             Associate Chief Counsel
                                             (Passthroughs and Special Industries)



                                      By:    ______________________________
                                             Mary Beth Carchia
                                             Senior Technician Reviewer, Branch 3
                                             Office of Associate Chief Counsel
                                             (Passthroughs & Special Industries)

PLR-126979-17 4

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

cc: