Partnership received 120 days to make late section 754 election

Plain-English summary

A partnership had made a section 754 election before a technical termination but failed to make a valid election for the post-termination period. Although it attached a statement showing section 743(b) basis adjustments, the statement was unsigned and lacked the required election language. The partnership represented that it always intended the election, acted reasonably and in good faith, and would not prejudice the government. The IRS granted 120 days to file the election under Treasury Regulation section 301.9100-3. The relief required consistent returns and all basis and depreciation adjustments that would have applied if the election had been timely made, including adjustments affecting years whose limitation periods had expired.

Ruling snapshot

• Question: Could the partnership obtain extra time to make a section 754 election after its technical termination?
• Outcome: approved; a 120-day extension was granted subject to filing and basis-adjustment conditions
• Key authorities: IRC §§ 708(b)(1)(B), 734(b), 743(b), 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201919010                                              Third Party Communication: None
Release Date: 5/10/2019                                        Date of Communication: Not Applicable
Index Numbers: 754.00-00, 9100.00-00,
              9100.15-00                                       Person To Contact:
                                                               -------------------------, ID No. -----------------
----------------------------------------                       -----------------------------------------------------
--------------------------                                     Telephone Number:
---------------------------------------                        ----------------------
-----------------------------------------                      Refer Reply To:
                                                               CC:PSI:B03
                                                               PLR-134011-18
                                                               Date:
                                                               February 05, 2019

Legend

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

M        =        -----------------------------------------

N        =        ------------------------------------------------

O        =        -----------------------------------

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

Date1 =           --------------------

Date2 =           --------------------

Date3 =           --------------------

Date4 =           --------------------

Date5 =           ---------------------------



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

      This letter responds to a letter dated November 14, 2018, submitted on behalf of
X requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for X to make an election under § 754 of the Internal
Revenue Code (“Code”).
PLR-134011-18                                 2




                                   FACTS

        According to the information submitted, X is a limited liability company formed
under the laws of State on Date1 and is classified as a partnership for federal tax
purposes. X began operations on Date2. X conducts its business operations through
M, a limited liability company wholly-owned by X. On Date3, N and O purchased
interests in X, and these purchases resulted in a technical termination of X under
§ 708(b)(1)(B) of the Code (as it was in effect at the time). X represents that it had
made a timely election under §754 for the period beginning Date2 and ending Date3
(the period prior to the technical termination of X), but failed to make a timely election
for the period beginning Date4 and ending Date5 (the period after the technical
termination of X). X represents that it always intended to make the election under § 754
to be effective for the period from Date4 to Date5. X also attached a statement to its
return for the period from Date4 to Date5 showing the § 743(b) basis adjustment
allocated to N and O, but this statement was not signed by a partner and did not contain
the election statement required by § 1.754-1(b) of the Income Tax Regulations
(“regulations”). X further represents that X has acted reasonably and in good faith and
that granting the requested relief will not prejudice the interests of the government.

                            LAW AND ANALYSIS

       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 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 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) 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) provides that the term “regulatory
PLR-134011-18                                  3

election” includes 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 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.


                                    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 the period from Date4 to Date5, and thereafter. The election
should be made in a written statement filed with the applicable service center for
association with X’s return for the period from Date4 to Date5. A copy of this letter
should be attached to the statement filed.

       This ruling is contingent on X and its partners filing within 120 days of this letter
all required returns for all open years consistent with the requested relief. Any
depreciation deduction allowable for an open year is to be computed based upon the
remaining useful life and using property basis as adjusted by the greater of any
depreciation deduction allowed or allowable in any prior year had the § 754 election
been timely made.

        Additionally, as a condition of this ruling, to the extent that X has not already
done so, X must adjust the basis of its properties to reflect any § 734(b) or 743(b)
adjustments that would have been made if the § 754 election had been timely made.
These basis adjustments must reflect any additional depreciation that would have been
allowable if the § 754 election had been timely made, regardless of whether the
statutory period of limitation on assessment or filing a claim for refund has expired for
any year subject to this grant of late relief. Additionally, the partners of X must adjust
the basis of their interests in X to reflect what that basis would be if the § 754 election
had been timely made, regardless of whether the statutory period of limitation on
assessment or filing a claim for refund has expired for any year subject to this grant of
late relief. Specifically, the partners of X must reduce the basis of their interests in X in
PLR-134011-18                                 4

the amount of any additional depreciation that would have been allowable if the § 754
election had been timely made.

       Except for the specific ruling above, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provision of the
Code. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

       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.

      This ruling is directed only to the taxpayer requesting it. According to
§ 6110(k)(3), this ruling may not be used or cited as precedent.

        Under a power of attorney on file with this office, we are sending a copy of this
letter to X’s authorized representative.


                                          Sincerely,

                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)



                                   By:    _____________________________
                                          Richard T. Probst
                                          Senior Technician Reviewer, Branch 3
                                          Office of the Associate Chief Counsel
                                          (Passthroughs & Special Industries)



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


cc: