Partnership received 120 days for section 754 election after partner's death

Plain-English summary

A limited liability company classified as a partnership timely filed its return for the year in which a partner died but inadvertently omitted a valid section 754 election. The partnership represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS found that the regulatory relief requirements were satisfied and granted 120 days to file the election effective for the relevant year and later years. The IRS did not decide whether the company was properly classified as a partnership for federal tax purposes.

Ruling snapshot

• Question: Could the partnership receive additional time to make its missed section 754 election after a partner's death?
• Outcome: Yes, it received 120 days from the ruling date to file the election.
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201924010
Third Party Communication: None
Release Date: 6/14/2019
Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00,
9100.31-00
Person To Contact:
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ID No. ----------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-123570-18
Date:
March 05, 2019

LEGEND

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

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

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

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

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

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

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

This letter responds to a letter dated August 1, 2018, submitted on behalf of X 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 formed as a limited liability company under the laws of State on Date 1. X is classified as a partnership for federal tax purposes. A, a partner in X, died on Date 2. X's tax return for the taxable year ended Date 3 was timely filed, but a valid § 754 election to adjust the basis of partnership property was inadvertently not filed with the return. X represents that it has acted

PLR-123570-18
2

reasonably and in good faith, and that granting relief will not prejudice the interests of the Government.

Law and Analysis

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.

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.

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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 3 and thereafter. 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 3. 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 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 a power of attorney on file with this office, we are sending a copy of this letter ruling to your authorized representative.

Sincerely,

Holly Porter
Associate Chief Counsel
(Passthroughs & Special Industries)

By: Joy C. Spies
Joy C. Spies
Senior Technician Reviewer, Branch 1
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)

Copy of this letter
Copy of this letter for section 6110 purposes