120-day extension for an LLC to make a late Section 754 basis-adjustment election

Plain-English summary

A state LLC taxed as a partnership had two new members buy interests in the same year and meant to make a Section 754 election, which lets the partnership adjust the tax basis of its assets when interests change hands. It missed the filing deadline. Because the partnership and all affected partners had already filed their returns as if the election were in place, it asked the IRS for relief under Treas. Reg. § 301.9100-3, the regulation that lets the Commissioner grant more time for a missed regulatory election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS agreed and granted 120 days from the date of the letter to file the election. This is a routine "9100 relief" grant: it fixes a late-filing slip but does not decide whether the taxpayer was otherwise eligible to make the election in the first place.

Ruling snapshot

• Question: May a partnership that inadvertently missed the deadline get an extension to make a Section 754 election?
• Outcome: approved (120-day extension granted)
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202216007 Third Party Communication: None
Release Date: 4/22/2022 Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:

-------------------------- ------------------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
--------------------- --------------------
------------------------ Refer Reply To:
------------------ CC:PSI:B01
--------------------------- PLR-115647-21
-------------------------------------------------- Date:
January 24, 2022

                                                LEGEND

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

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

B = -----------------------------------------------------------------------------------

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

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

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

Year = -------

m% = --------

n% = --------

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

This letter responds to a letter dated July 19, 2021, 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

PLR-115647-21 2

The information submitted states that X is a State limited liability company that is
classified as a partnership for federal tax purposes. On Date 1, A purchased an m%
interest in X . On Date 2, B purchased an n% interest in X. X intended to make an
election under § 754 for the year of A’s and B’s purchase (Year). However, X
inadvertently failed to timely file the election.

X represents that it has filed returns for its Year tax year and subsequent tax years
consistent with the election having been made, and that all affected partners have also
filed their returns consistent with the election having been made.

                              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 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 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
PLR-115647-21 3

                                  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 Year tax return. A copy of this letter should be attached to the statement filed.

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
or the regulations thereunder. 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.

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.

In accordance with the Power of Attorney on file with this office, we have sent a copy of
this letter to your authorized representative.

                               Sincerely,

                               Holly Porter
                               Associate Chief Counsel
                               (Passthroughs & Special Industries)



                               By: _____________________
                               Jennifer N. Keeney
                               Senior Counsel, Branch 1
                               Office of the Associate Chief Counsel

Enclosure
Copy for § 6110 purposes

cc: