9100 relief to file a late section 754 election after a partner's death

Plain-English summary

A limited partnership had a partner who died, an event that lets the partnership step up (or down) the basis of its assets to match the successor's basis in the partnership interest, but only if the partnership has a section 754 election in place. The partnership timely filed its return for the year of the death, but inadvertently left out the written statement making the § 754 election. It asked the IRS for "9100 relief," a discretionary extension under Treas. Reg. § 301.9100-3, and the IRS granted it. Relief is available when the taxpayer acted reasonably and in good faith and granting it will not prejudice the government. The IRS gave the partnership 120 days from the date of the letter to file the election statement, effective for the year including the death and thereafter. The grant is contingent: the partnership must make all the § 734(b) and § 743(b) basis adjustments (and related depreciation adjustments) it would have made had the election been timely, and its partners must adjust the basis of their partnership interests accordingly, even for years now closed by the statute of limitations. This matters because a § 754 election can significantly change depreciation and gain calculations, and 9100 relief can rescue a missed one.

Ruling snapshot

• Question: Should the partnership get an extension of time under § 301.9100-3 to file a late § 754 election effective for the year a partner died?
• Outcome: Approved (9100-3 relief granted; 120 days to file the election statement, contingent on making the corresponding § 734(b)/§ 743(b) basis adjustments)
• Key authorities: IRC §§ 754, 734, 743; 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: 202152007
Third Party Communication: None
Release Date: 12/30/2021
Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.15-00
Person To Contact:
--------------------------------------------------------- --------------, ID No. -----------------
------------------------
Telephone Number:
------------------------------------
--------------------
--------------------------------
Refer Reply To:
---------------------------
CC:PSI:B01
PLR-107662-21
Date:
September 17, 2021

LEGEND

Company = -------------------------------------
-----------------------

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

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

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

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

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

This letter responds to a letter dated February 9, 2021, and additional information submitted on behalf of Company 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 Company was organized as a limited partnership under the laws of State on Date 1. Company is classified as a partnership for federal tax purposes. A held a partnership interest in Company when he died on Date 2. Company’s tax return for the taxable year including Date 2 was timely filed, but a valid § 754 election to adjust the basis of partnership property was inadvertently not filed with the return. Company represents that it has acted reasonably and in good faith, and that granting relief will not prejudice the interests of the Government.
PLR-107662-21
2

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 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 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, Company 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
PLR-107662-21
3

for association with Company’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 Company 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 Company must adjust the basis of their interests in Company 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 Company must reduce the basis of their interests in Company 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 Company 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-107662-21
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,

Associate Chief Counsel
(Passthroughs & Special Industries)

By:

Laura Fields
______
Laura Fields
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: