Partnership gets 120 days for election after partner's death

Plain-English summary

A limited partnership failed to make a section 754 election after a deceased partner's interest passed to an estate. The partnership had relied on its tax adviser and did not know it was eligible to make the election. It later discovered the omission, while it and the affected partners had filed subsequent returns consistently with the election having been made. The IRS concluded that the partnership acted reasonably and in good faith and that relief would not prejudice the government, and it granted 120 days to file the election for the original year.

Ruling snapshot

• Question: Could the partnership make a late section 754 election for the year of a partner's death and transfer to the estate?
• Outcome: Approved, with 120 days to file the election.
• 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: 201949010 Third Party Communication: None
Release Date: 12/6/2019 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-104840-19
Date:
August 16, 2019

LEGEND

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

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

Estate = -------------------------

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

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

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

Year 1 = -------

Year 2 = -------

Year 3 = -------

n% = ------

State = ---------------
PLR-104840-19 2

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

This is in response to a letter November 28, 2018, and supplemental correspondence,
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 partnership on Date 1
under the laws of State and is treated as a partnership for federal tax purposes.
On Date 2, A, a partner of X, died. After A’s death, A’s n% interest in X was transferred
to Estate.

X filed its income tax return for Year 1. X represents that it relied upon its tax advisor
when preparing the tax return for Year 1. X represents that it was unaware that it was
eligible to make a section 754 election. X further represents that in Year 3, X became
aware of its eligibility to make a section 754 election and its failure to timely make the
election with its return for its taxable year ending on Date 3. X represents that it has
filed its tax return for Year 2, consistent with having made a valid section 754 election.

X represents that it has filed returns for its taxable year ended on Year 2 and
subsequent years consistent with the election having been made, and that all affected
partners have also filed their returns consistent with the election having been made.
Further, X 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
PLR-104840-19 3

filed not later than the time prescribed by § 1.6031-1(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 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.

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.
PLR-104840-19 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

cc: