IRS grants a partnership extra time to make a late § 754 basis-adjustment election after a partner's death

Plain-English summary

A § 754 election lets a partnership adjust the tax basis of its assets when a partnership interest changes hands or property is distributed, so the new owner's inside basis matches what they effectively paid. Here an LLC taxed as a partnership had a partner die, but it inadvertently failed to attach the § 754 election to its timely filed return for that year. The partnership asked the IRS for "9100 relief," a discretionary extension under Treas. Reg. § 301.9100-3 for missed regulatory elections. The IRS granted 120 days from the date of the letter to file the election effective for the year of the death and afterward, finding the taxpayer acted reasonably and in good faith and that relief would not prejudice the Government. The relief comes with a condition: the partnership and its partners must recompute basis (and depreciation) as if the election had been timely, even for closed years, so the taxpayer cannot use the late election to double-count deductions. The IRS expressed no opinion on whether the entity actually qualifies as a partnership. This is a routine but valuable fix that preserves the basis step-up tied to the deceased partner's interest.

Ruling snapshot

• Question: Should the IRS grant an extension of time under § 301.9100-3 to file a late § 754 election?
• Outcome: approved (conditioned on recomputing basis and depreciation as if the election had been timely)
• Key authorities: IRC §§ 754, 734(b), 743(b); Treas. Reg. §§ 1.754-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202049001                                            [Third Party Communication:
 Release Date: 12/4/2020                                      Date of Communication: Month DD, YYYY]
 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:01
                                                              PLR-106296-20
                                                              Date:
                                                              August 25, 2020




 Legend

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

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

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

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

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



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

This letter responds to a letter dated February 25, 2020, submitted on behalf of X by its
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 was organized as a limited liability company
under the laws of State on Date 1. X is classified as a partnership for federal tax
purposes. A held a partnership interest in X when he died on Date 2. X's tax return for
the taxable year including Date 2 was timely filed, but a valid § 754 election to adjust the
PLR-106296-20                                 2

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

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.
PLR-106296-20                                  3

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 including Date 2 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 including Date 2. 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 upon 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 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.
PLR-106296-20                                 4

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)




                                      /s/ Laura C. Fields

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


Enclosures: Copy of this letter


Copy of this letter for § 6110 purposes


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