Partnership gets 120 days to make late section 754 election

Plain-English summary

A partnership timely filed its return for the year in which a partner died but inadvertently omitted a section 754 election. The IRS concluded that the requirements for discretionary filing relief were satisfied and gave the partnership 120 days to file the election statement. Relief is conditioned on the partnership making all section 734(b) and 743(b) basis adjustments that a timely election would have required. Those adjustments must account for depreciation that would have been allowable even for closed years, and the partners must adjust their outside bases consistently. The IRS did not rule on whether the taxpayer was otherwise a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership make a late section 754 election after a partner's death?
• Outcome: Approved, with 120 days to file the election statement and make all required basis adjustments.
• 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: 201923015                                           Third Party Communication: None
Release Date: 6/7/2019                                      Date of Communication: Not Applicable
Index Number: 9100.00-00, 754.00-00
                                                            Person To Contact:
-------------------------------------                       ----------------------, ID No. ------------------
----------------------------------                          Telephone Number:
------------------------                                    ----------------------
-------------------------------                             Refer Reply To:
                                                            CC:PSI:B01
                                                            PLR-123318-18
                                                            Date:
                                                            February 25, 2019

         Legend:

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

                  State             =   ---------

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

                  Year              =   -------



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

This letter responds to your request, dated July 19, 2018, on behalf of X, for permission
to file a late section 754 election under section 301.9100 of the Procedure and
Administration Regulations.

                                                    Facts

        Based on the materials submitted and representations within, we understand the
relevant facts to be as follows. X is a partnership formed in accordance with the laws of
State. A partner in X, died on Date 1. X’s partnership return for Year was timely filed,
but inadvertently a section 754 election to adjust the basis of partnership property was
not filed with the return.

                                         Law and Analysis

       Under section 754 of the Internal Revenue Code, a partnership may elect to
adjust the basis of partnership property where there is a distribution of property or a
transfer of a partnership interest. The election applies to all distributions of property by
PLR-123318-18                                 2

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 years.

        Section 1.754-1(b) of the Income Tax Regulations provides that an election
under section 754 is 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 no later than the time for filing for the taxable year,
including extensions.

       Under section 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 deadline is prescribed by a regulation
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 301.9100-1(a).

       Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions for time for making elections that do
not meet the requirements of section 301.9100-2.

                                       Conclusions

        Based on the information submitted and the representations made, we conclude
that the requirements of section sections 301.9100-1 and 301.9100-3 have been
satisfied. As a result, X is granted an extension of time of 120 days following the date of
this letter to make a section 754 election. The election should be made in a written
statement filed with the applicable service center for association with X’s return. A copy
of this letter should be attached to the statement filed. A copy of this letter is enclosed
for that purpose.

        This ruling is contingent on X adjusting the basis of its properties to reflect any
section 734(b) or section 743(b) adjustments that would have been made had the
section 754 election been timely made. These basis adjustments must reflect any
additional depreciation that would have been allowable had the section 754 election
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 election relief. Any depreciation deduction allowable for an open year is to be
computed based upon the remaining useful life and using property basis adjusted by the
greater of any depreciation allowed or allowable in any prior year had the section 754
election been timely made. Additionally, X's partners must adjust the basis of their
PLR-123318-18                                 3

interests in X to reflect what that basis would be had the section 754 election 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 election
relief. Specifically, X's partners must reduce the basis of their interests in X in the
amount of any additional depreciation that would have been allowable had the section
754 election been timely made.

       Except as specifically set forth above, we express no opinion concerning the
federal income tax consequences of the transactions described above under any other
provision of the Code. Specifically, we express no opinion as to whether or not X is a
partnership for federal tax purposes.

       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. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

      Pursuant to the Power of Attorney on file with this office, a copy of this ruling will
be sent to the taxpayer representative.


                                       Sincerely,


                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs and Special Industries)


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


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


cc: