IRS grants partnership late Section 754 election

Plain-English summary

A partnership failed to make a timely Section 754 election for the year in which a partner died. It represented that the failure was inadvertent, that it acted reasonably and in good faith, and that relief would not prejudice the government. The IRS granted 120 days to file the written election for association with the partnership return. The relief was conditioned on the partnership making all Section 734(b) and 743(b) basis adjustments that would have applied if the election had been timely, including allowable depreciation for earlier years. The partners also had to adjust the bases of their partnership interests even for years whose limitation periods had expired.

Ruling snapshot

• Question: Could the partnership make a late Section 754 election after a partner's death?
• Outcome: Approved.
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202130009 Third Party Communication: None
Release Date: 7/30/2021 Date of Communication: Not Applicable
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:B01
                                                        PLR-120211-20
                                                        Date:
                                                        March 16, 2021


                                                LEGEND

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

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

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

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

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

Year = -------

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

This letter responds to your letter dated September 11, 2020, and subsequent
correspondence, 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 partnership formed on Date 1. A, a
partner in X, died on Date 2. X inadvertently failed to file a timely election under section
754 for Year. X represents that it has acted reasonably and in good faith, and that the
granting of relief will not prejudice the interests of the government.
PLR-120211-20 2

                              LAW AND ANALYSIS

Section 754 provides that a partnership may elect to adjust the basis of partnership
property when there is a distribution of property or a transfer of a partnership interest.
An election under § 754 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 not later than the time prescribed by § 1.6031(a)-1(e) (including extensions) for
filing the return for such taxable year.

Under § 301.9100-1(c), 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 Internal Revenue
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
301.9100-1(a). 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.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides
evidence (including affidavits described in § 301.9100-3(e)) to establish that the
taxpayer acted reasonably and in good faith, and that granting relief will not prejudice
the interests of the government. Section 301-9100-3(a).

                                  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 one hundred-twenty (120) days from the date of this
letter to make a § 754 election for partnership’s Year tax year. The election should be
made in a written statement filed with the applicable service center for association with
X’s tax return. A copy of this letter should be attached to the statement filed.

This ruling is contingent on X filing all required returns and 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
PLR-120211-20 3

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 expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item 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 requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

The ruling contained in this letter is based on 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.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

                                Sincerely,

                                Associate Chief Counsel
                                (Passthroughs & Special Industries)


                                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 section 6110 purpose

cc: