Partnership received 120 days to make a section 754 election

Plain-English summary

A partnership admitted a purchaser of a membership interest but did not make a section 754 election with its timely return for that year. The partnership relied on a tax professional, was unaware that it could make the election, and was not advised to do so. After later discovering the omission, it requested relief and represented that it had acted reasonably, in good faith, and without hindsight. The IRS granted 120 days to file the written section 754 election for the transfer year. The election permits partnership property basis adjustments under sections 734(b) and 743(b).

Ruling snapshot

• Question: Could the partnership 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), 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: 201920010                                              Third Party Communication: None
Release Date: 5/17/2019                                        Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
              9100.00-00, 9100.15-00                           Person To Contact:
                                                               --------------, ID No. ----------------
--------------------------------                               Telephone Number:
--------------------------                                     --------------------
-----------------------------------                            Refer Reply To:
----------------------------                                   CC:PSI:B01
                                                               PLR-134286-18
                                                               Date:
                                                               December 21, 2018




LEGEND

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

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

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

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

Date 3            =        --------------------------

Year 1            =        ------

Year 2            =        ------

$a                =        --------------

n%                =        ---

o%                =        ---

State             =        -------



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

PLR-134286-18                                 2


This is in response to a letter signed November 5, 2018, 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.

FACTS

According to the information submitted, X was formed as a limited liability company
under the laws of State on Date 1. X is treated as a partnership for federal tax
purposes.

A purchased n% of X’s membership interest on Date 2. A purchased the interest in X
for a total of $a. After the transfer A owned an o% interest in X. X’s partnership return
for Year 1 was timely filed, however, X’s partnership return for Year 1 did not reflect
adjustments to the basis of the partnership property as if a § 754 election were in effect.

X represents that it relied upon a tax professional when preparing the tax return for Year

1. X represents that it was not aware of its eligibility to make a section 754 election and
that it was not advised by its tax advisor to make a section 754 election. X further
represents that around Year 2, X became aware of the error with making the section
754 election for its taxable year ending Date 3.

X further represents that it has acted reasonably and in good faith, that granting relief
will not prejudice the interests of the government, and that it is not using hindsight in
making the election.

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 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 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.

PLR-134286-18                                3

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 Internal Revenue
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
301.9100-1(a). 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.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides
evidence to establish that the taxpayer acted reasonably and in good faith, and that
granting relief will not prejudice the interests of the government. Section 301-9100-3(a).

CONCLUSION

Based solely 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 one hundred-twenty (120) days from the date of this
letter to make a § 754 election for Year 1. The election should be made in a written
statement filed with the applicable service center for association with X’s tax return. A
copy of this letter should be attached to the statement filed.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

PLR-134286-18                                  4

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

                                       Sincerely,



                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)



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



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