120-day extension for a partnership to make a late § 754 basis-adjustment election

Plain-English summary

A limited partnership wanted to make a § 754 election, which lets a partnership adjust the tax basis of its property when a partnership interest changes hands (here, when the sole beneficiary of a grantor trust holding a partnership interest died and the interest passed to his estate). The election must be filed with a timely partnership return, but the partnership inadvertently left the election off its return. Because the deadline comes from a regulation, the IRS can grant a late-election extension under Treasury Regulation § 301.9100-3 when the partnership acted reasonably and in good faith and relief will not prejudice the government. The partnership had already been filing consistently with the election. The IRS granted 120 days from the date of the letter to make the § 754 election by filing the required written statement.

Ruling snapshot

• Question: May a partnership get a § 301.9100-3 extension to make a late § 754 basis-adjustment election?
• Outcome: Approved (120-day extension)
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202214012
Third Party Communication: None
Release Date: 4/8/2022
Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00
Person To Contact:
------------------------, ID No. -----------------
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Telephone Number:
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Refer Reply To:
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CC:PSI:B01
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PLR-120397-20
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Date:
December 23, 2021

LEGEND

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

State = --------

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

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

Year = -------

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

This letter responds to your letter dated September 16, 2020, 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

According to the information submitted, X was a limited partnership organized under the laws of State and was treated as a partnership for federal tax purposes for all relevant years.

On Date 1, the sole beneficiary of a grantor trust owning an interest in X died. Upon that beneficiary's death, the trust's interest in the partnership transferred to his estate. X's partnership return for Year was timely filed, but a section 754 elect to adjust the basis of partnership property was inadvertently not filed with the return.
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X represents that it has filed returns for its taxable year that ended on Date 2 and subsequent years consistent with the election having been made.

Further, X represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that it is not using hindsight in making the election.

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 § 1.6031-1(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 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
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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 1 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.

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.

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)

By:
Joy C. Spies
Senior Technician Reviewer, Branch 1
(Passthroughs & Special Industries)

Enclosures
Copy for section 6110 purpose

cc: