Partnership gets 120 days for late Section 754 elections

Plain-English summary

A foreign-law general partnership failed to make timely section 754 elections for two taxable years after a purchaser acquired an interest in it. The partnership represented that it acted reasonably and in good faith, was not using hindsight, and would not obtain a lower aggregate tax liability from late relief. The IRS granted 120 days to file written elections effective for both years and thereafter. Relief required the partnership and its partners to make all basis, depreciation, and return adjustments that would have applied if the elections had been timely, even for years whose limitation periods had expired.

Ruling snapshot

• Question: Could the partnership receive additional time to make section 754 elections for two prior taxable years?
• Outcome: Approved, with 120 days to file the elections and make all required retroactive 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: 201950001 Third Party Communication: None
Release Date: 12/13/2019 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:B3
---------------------------------------- PLR-101031-19
Date:
September 12, 2019

                                                 Legend

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

A =

n =

Country =

Date #1 =
Date #2 = ---------------------------

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

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

  This letter responds to a letter dated November 5, 2018, and subsequent

correspondence, submitted on behalf of X by its authorized representatives,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to make elections under § 754 of the Internal Revenue Code
(Code).
PLR-101031-19 2

                                       FACTS

   The information submitted states that X was formed as a general partnership

under the laws of Country on Date #1. X represents that, on Date #1, X was a
partnership for federal tax purposes. On Date #2, A purchased an n% interest in X. X
inadvertently failed to file an election under § 754 for X’s taxable years ending Date #2
and Date #3.

    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. X also represents that granting relief will not result in the affected
taxpayers, in the aggregate, having a lower tax liability than if the election had been
timely made.

                                        LAW

     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
PLR-101031-19 3

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.

                                  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 elections under § 754 effective for its taxable years ended Date #2 and Date #3
and thereafter. The election should be made in a written statement filed with the
appropriate service center for association with X’s returns for its taxable years ended
Date #2 and Date #3. A copy of this letter should be attached to the elections.

    This ruling is contingent on X filing all required returns adjusting 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 the amount of any additional depreciation that would
have been allowable if the § 754 election had been timely made.

   Except as specifically set forth above, we express or imply no opinion concerning

the federal tax consequences of the facts described above under any other provision of
the Code and the regulations thereunder. Specifically, we express no opinion as to
whether X is a partnership for federal tax purposes.

  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.

   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-101031-19 4

  In accordance with the power of attorney on file with this office, we are sending a

copy of this letter to X's authorized representatives.

                                     Sincerely,
                                     Associate Chief Counsel
                                    (Passthroughs & Special Industries)


                                 By: _______________________
                                     Caroline E. Hay
                                     Assistant to the Branch Chief, Branch 3
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)

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