Partnership gets 120 days to make late section 754 election

Plain-English summary

A limited partnership intended to make a section 754 election after a partner died and partnership interests passed through a trust. The partnership instructed its tax advisors to make the election, but they inadvertently omitted the required statement from a timely filed return. The partnership represented that it acted reasonably and in good faith, and its returns for the election year and later years were filed consistently with having made the election. The IRS granted 120 days to file the election. Relief was conditioned on retroactively reflecting all section 734(b) and 743(b) basis adjustments, related depreciation, and corresponding changes to the partners' outside bases as if the election had been timely.

Ruling snapshot

• Question: May the partnership make a late section 754 election after its advisors omitted the election statement?
• Outcome: approved
• Key authorities: IRC §§ 734, 743, 754; Treas. Reg. §§ 1.743-1(b), 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: 202015014 Third Party Communication: None
Release Date: 4/10/2020 Date of Communication: Not Applicable
Index Numbers: 754.02-00, 9100.00-00,
9100.15-00 Person To Contact:
-------------------, ID No. -----------------
----------------------------------------------- Telephone Number:
----------------------- --------------------
-------------------------------- Refer Reply To:
------------------------------- CC:PSI:B03
PLR-116402-19
Date:
December 30, 2019

                                               Legend

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

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

Trust = --------------------------------------------------------------------------------------------------------
----------------------

State = -------------
Date = --------------------------
Year = -------

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

   This letter responds to a letter dated April 3, 2019, 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 (Code).

                                                 Facts

    The information submitted states that X is a State limited partnership that is

classified as a partnership for federal tax purposes. On Date, A died. At that time, A
held interests in X through Trust. X represents that its tax advisors advised X about the
PLR-116402-19 2

election under § 754 to adjust the basis of partnership property in connection with the
death of A and X instructed its tax advisors to make the election on its Year tax return.

    X’s tax return for its Year taxable year was timely filed, but a § 754 election was

not filed with the return because its tax advisors inadvertently failed to take the proper
steps to make the § 754 election. X represents that its tax return for its Year taxable
year and subsequent tax years were filed consistently with making the § 754 election.

    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
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 1.743-1(b) provides that, in the case of the transfer of an interest in a

partnership, either by sale or exchange, or as a result of the death of a partner, a
partnership that has an election under section 754 in effect—(1) increases the adjusted
basis of partnership property by the excess of the transferee’s basis for the transferred
partnership interest over the transferee’s share of the adjusted basis to the partnership
of the partnership’s property; or (2) decreases the adjusted basis of partnership property
by the excess of the transferee’s share of the adjusted basis to the partnership of the
partnership’s property over the transferee’s basis for the transferred partnership
interest.

   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
PLR-116402-19 3

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 Year taxable year and thereafter. The election should be
made in a written statement filed with the applicable service center for association with
X’s return for its Year taxable year. A copy of this letter should be attached to the
statement filed.

   This ruling is contingent on X 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. Any depreciation deduction
allowable for an open year is to be computed based on the remaining useful life and
using property basis as adjusted by the greater of any depreciation deduction allowed or
allowable in any prior year had the § 754 election been timely made.

    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 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. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
PLR-116402-19 4

making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

   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,

                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)




                              By: _________________________
                                  Caroline E. Hay
                                  Senior Counsel, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: