A partnership received more time to make a section 754 election

Plain-English summary

A partnership redeemed two partners during a taxable year but did not file a section 754 election because it mistakenly believed a valid election was already in effect. After discovering the error, the partnership represented that its returns for that year and later years had been filed consistently with the election. The IRS concluded that the partnership met the standards for discretionary filing relief and granted 120 days to make the election for the year of the redemptions. A section 754 election permits partnership property basis adjustments under sections 734 and 743. The ruling did not determine whether the partnership otherwise qualified to make the election.

Ruling snapshot

• Question: Could the partnership make a late section 754 election after mistakenly believing an earlier election remained in effect?
• Outcome: Approved, with 120 days to file the election
• Key authorities: IRC §§ 734, 743, 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: 202252002 Third Party Communication: None
Release Date: 12/30/2022 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-107367-22
Date:
October 03, 2022

LEGEND

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

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

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

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

Dear --------------

This letter responds to a letter dated April 6, 2022, 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. During Company’s taxable year ended on Date 2, two partners of Company
were redeemed out. In connection with the redemption, Company erroneously believed
that it had already made a valid section 754 election for a previous tax year and thus, did
not file a section 754 election for its tax year ended on Date 2. Company now represents
PLR-107367-22 2

that, upon further investigation, it did not already have a valid section 754 election in
effect. Company represents that it has filed returns for its taxable year ended on Date 2
and subsequent years consistent with the election having been made.

                                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.
PLR-107367-22 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,
Company 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
Company's tax return for its taxable year ended on Date 2. 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.
PLR-107367-22 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,

                                  Holly Porter
                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)

                                  By:

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

Enclosure
Copy for § 6110 purposes

cc: