Partnership receives conditional late Section 754 election relief

Plain-English summary

A limited partnership intended to make a Section 754 election but inadvertently omitted it from its timely filed return. It represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days from the ruling date to file the written election with the appropriate service center. Relief required the partnership to make all property-basis and depreciation adjustments that would have applied if the election had been timely, including adjustments affecting years whose assessment or refund periods had expired. The partners also had to adjust the bases of their partnership interests, including reductions for depreciation that would have been allowable. The ruling did not decide whether the partnership was otherwise eligible to make the election.

Ruling snapshot

• Question: Could the partnership obtain an extension to make a Section 754 election omitted from its timely filed return?
• Outcome: Approved for 120 days, subject to retroactive property, depreciation, and partner-basis adjustments.
• Key authorities: IRC §§ 734, 743, 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: 202129003
Third Party Communication: None
Release Date: 7/23/2021
Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.15-00
Person To Contact:
----------------------------------------------- ---------------------, ID No. ---------------
------------------------------------
Telephone Number:
----------------------------
--------------------
---------------------------------------------- Refer Reply To:
------------------------
CC:PSI:B03
------------------------------
PLR-125214-20
Date:
April 28, 2021

Legend:

X: -----------------------------------------------
----------------------

State: ---------------------

Date: --------------------------

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

This letter responds to a letter dated October 15, 2020, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an election under § 754 of the Internal Revenue Code (Code).

FACTS

X, a State limited partnership, intended to make an election under § 754 for its taxable year ended Date. X timely filed a partnership return for its taxable year ended Date, but inadvertently failed to make a § 754 election with the return. X represents that it has acted reasonably and in good faith, and that granting relief to make a § 754 election 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-125214-20
2

an election 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 filed no later than the time prescribed by § 1.6031(a)-1(e) (including extensions) for filing the return for such 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 six 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 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 301.9100-2 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.

Under § 301.9100-3, a request for relief will be granted when the taxpayer provides 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 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 taxable year ended Date. The election should be made in a written statement filed with the applicable service center for association with X's return for its taxable year ended Date. 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

PLR-125214-20
3

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 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 ruling to your authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: __________
Adrienne M. Mikolashek
Branch Chief, Branch 3
Office of Chief Counsel
(Passthroughs & Special Industries)

PLR-125214-20
4

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

cc: --------------------------------
------------------------------------
----------------------------------------
-------------------------

----------------------------------
-------------
------------------------------------------------
----------------------------