Partnership joint venture gets late relief to make a Section 754 basis-adjustment election

Plain-English summary

A joint venture taxed as a partnership timely filed its return for the year
in which partnership interests were transferred, but forgot to attach the
election under IRC § 754. A § 754 election lets a partnership adjust the tax
basis of its assets after a transfer or distribution, which can matter a great
deal to the incoming and continuing partners. The partnership asked the IRS
for an extension under Treas. Reg. § 301.9100-3, representing that it acted
reasonably and in good faith and that relief would not prejudice the
government. The IRS agreed and granted 120 days to file the election. As a
condition, the partnership must compute the basis adjustments as if the
election had been timely made, and where the limitations period has closed
for a year, the partners must reduce their outside basis to prevent a double
benefit. The letter covers a group of related partnerships listed by separate
PLR control numbers.

Ruling snapshot

• Question: Should the partnership get an extension of time to make a late IRC § 754 election after interests were transferred?
• Outcome: approved (120-day extension granted under Treas. Reg. § 301.9100-3, with basis-adjustment conditions)
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b)(1), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202007003 Third Party Communication: None
Release Date: 2/14/2020 Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.00-00,
9100.15-00 Person To Contact:
------------------------, ID No. ------------------
----------------- ----------------------------------------------------
------------------------ Telephone Number:
-------------------------------------------------- ----------------------
-------------------------------------------- Refer Reply To:
CC:PSI:03
PLR-107686-19, et al.
Date:
October 02, 2019

Legend

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

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

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

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

This letter responds to a letter dated April 5, 2019, and subsequent correspondence,
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 is a joint venture that is classified as a
partnership for federal tax purposes. Interests in X were transferred on Date 1. X's tax
return for its Date 2 taxable year was timely filed, but a §754 election to adjust the basis
of partnership property was inadvertently not filed with the return. X represents that it
has acted 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
PLR-107686-19, ------- 2

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.

                                     Conclusion

Based solely upon 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 120 days from the date of this letter to make a §754
election for its Date 2 taxable year 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 Date 2 taxable year. A copy of this letter should be attached to the statement
filed.

X must calculate the adjustments under §734(b) and (c), and §1.755-1(c), as if X had
timely made the §754 election and allocated the increase in basis among the properties
held by X at that time. If 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, then, as a condition
PLR-107686-19, ------- 3

of this late relief, the partners of X must reduce their respective basis of their interests in
X to reflect any additional basis adjustments under §734 that would have been allocated
under §755 to any properties sold in such years as if the §754 election had been timely
made in proportion to their interests in X.

Except for the specific ruling above, we express or imply no opinion concerning the
federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express no opinion as to whether 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.

In accordance with a power of attorney on file with this office, we are sending a copy of
this letter to your authorized representatives.

                                    Sincerely,


                                    ______________________________
                                    Stacy L. Short
                                    Senior Technician Reviewer, Branch 3
                                    Office of Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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

cc:
PLR-107686-19, ------- 4

                                     List of entities receiving ruling
                               Name                                 PLR              EIN

1 ----------------- PLR-107686-19 ------------------
2 -------------------------------- PLR-107687-19 ------------------
3 ------------------------------------ PLR-107689-19 ------------------
4 ----------------------------- PLR-107690-19 ------------------
5 -------------------------------- PLR-107691-19 ------------------
6 --------------------------------- PLR-107692-19 ------------------
7 ------------------------------------- PLR-107693-19 ------------------
8 ---------------------------------- PLR-107694-19 ------------------
9 ---------------------------------------- PLR-107695-19 ------------------
10 ----------------------------------- PLR-107696-19 ------------------
11 ------------------------------ PLR-107697-19 ------------------
12 ------------------------------------ PLR-107698-19 ------------------
13 ------------------------------------- PLR-107699-19 ------------------
14 -------------------------------------------------------------- PLR-107700-19 ------------------
15 ------------------------------------------------------------ PLR-107701-19 ------------------
16 ---------------------------------------- PLR-107702-19 ------------------
17 ------------------------------------------------- PLR-107703-19 ------------------
18 ------------------------------------------------ PLR-107705-19 ------------------
19 ---------------------------------------------- PLR-107706-19 ------------------
20 --------------------------- PLR-107707-19 ------------------
21 ------------------------------------------------ PLR-107708-19 ------------------
22 ------------------------------ PLR-107709-19 ------------------
23 --------------------------------------------------- PLR-107710-19 ------------------
24 --------------------------------------- PLR-107711-19 ------------------
25 -------------------------------------- PLR-107712-19 ------------------
26 ----------------------------------- PLR-107713-19 ------------------
27 ---------------------------------------------- PLR-107714-19 ------------------
28 ---------------------------------- PLR-107715-19 ----------------
29 ------------------------------------- PLR-107716-19 ------------------
30 --------------------------------------- PLR-107717-19 ------------------
31 ------------------------------------------------- PLR-107718-19 ------------------
32 ------------------------- PLR-107719-19 ------------------
33 -------------------------------------- PLR-107720-19 ------------------
34 -------------------------------- PLR-107721-19 ------------------
35 --------------------------------------- PLR-107722-19 ------------------
36 ------------------------ PLR-107724-19 ----------------
37 --------------------------- PLR-107725-19 ------------------
38 ------------------------------ PLR-107726-19 ------------------
39 ----------------------------------- PLR-107727-19 ------------------