A partnership received late section 754 election relief

Plain-English summary

A partner died while owning an interest in a partnership, but the partnership did not file a section 754 election with its timely return because its tax adviser failed to explain the election and its tax consequences. The IRS concluded that the partnership met the standards for late election relief and granted 120 days to file the election. The partnership had to make all section 734 and 743 basis adjustments that would have applied if the election had been timely, including adjustments involving closed years. Its partners also had to correct their outside bases. If an administrative adjustment request was required, the partnership also had to file Form 8082 and account for the adjustments under section 6227(b).

Ruling snapshot

• Question: Could the partnership make a late section 754 election after its adviser failed to explain the election and its consequences?
• Outcome: Approved, subject to retroactive basis-adjustment conditions
• Key authorities: IRC §§ 734(b), 743(b), 754, and 6227(b); 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: 202252003 Third Party Communication: None
Release Date: 12/30/2022 Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
------------------------------------------------- ----------------------------, ID No. --------------
---------------------------------------------- Telephone Number:
------------------------------ --------------------
------------------------------- Refer Reply To:
CC:PSI:B01
PLR-109401-22
Date:
September 26, 2022

                                                 LEGEND

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

Decedent = ---------------------
-------------------------

n = ----

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

Date1 = ------------------

Date2 = ------------------

Year = -------

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

This letter responds to a letter dated May 4, 2022, submitted on behalf of X by its
authorized representatives, 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”).
PLR-109401-22 2

                                      FACTS

The information submitted states that X was organized as a general partnership under
the laws of State on Date1. X is classified as a partnership for federal tax purposes.

On Date2, Decedent died owning approximately an n interest in X. X represents that its
partnership return for the Year taxable year was timely filed; however, a § 754 election
to adjust the basis of X’s property was not filed with the return because its tax advisor at
the time failed to advise X about the availability and tax consequences of making the
election.

                              LAW AND ANALYSIS

Section 754 of the Code 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 election 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, 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) of the Procedure and Administration Regulations 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) provides that the term “regulatory election” includes 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 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
evidence (including affidavits described in § 301.9100-3(e)) to establish to the
PLR-109401-22 3

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, X is granted an extension of time of 120 days from the date of this letter to make
an election under § 754 effective for its Year taxable year and thereafter. The election
should be made in a written statement filed with the appropriate service center either (1)
to be associated with X's Year partnership tax return, or (2) accompanying Form 8082,
Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), and any
related filings as instructed in Form 8082, as appropriate. A copy of this letter should be
attached to the relevant filing.

This ruling is contingent on X’s relevant filing(s) containing adjustments to the basis of
X’s 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 deductions for the recovery of basis related to X’s property 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 deductions for the recovery of basis
allowable for an open year are to be computed based on the remaining useful life or
recovery period and using property basis as adjusted by the greater of any such
deductions allowed or allowable in any prior year had the § 754 election been timely
made.

If the partnership is required to file an AAR in order to properly amend a partnership tax
return, then this ruling is also contingent on X filing Form 8082 and taking into account
the adjustments as required by § 6227(b).

Additionally, the partners of X must adjust the basis of their interests in X 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 X must reduce
the basis of their interests in X in the amount of any additional deductions for the
recovery of basis related to X’s property that would have been allowable if the § 754
election had been timely made.

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) of the Code
provides that it may not be used or cited as precedent.
PLR-109401-22 4

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

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

The rulings contained in this letter are 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 request for rulings, it is subject to verification on examination.

                                       Sincerely,

                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                                By:    _______________________________
                                       Jennifer N. Keeney
                                       Senior Counsel, Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: