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:
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Refer Reply To:
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CC:PSI:B01
PLR-107367-22
Date:
October 03, 2022

LEGEND

Company = ----------------------------------------------------------------------------------------------
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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
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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.
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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.
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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: