A partnership received 120 days to make a late section 754 election

Plain-English summary

After a member died, a partnership and its lower-tier partnerships intended to make section 754 elections so transferred interests would receive basis adjustments under section 743. The partnership's representative instructed the return preparer to make the elections, but the preparer filed elections only for the lower-tier partnerships and omitted the parent partnership. The IRS found that the parent met the standards for late regulatory-election relief and granted 120 days to file the election. Relief was conditioned on making all section 734 and 743 property-basis adjustments that would have applied with a timely election, including deductions allowed or allowable in closed years. The partners also had to adjust their outside bases, and the partnership had to use Form 8082 if an administrative adjustment request was required.

Ruling snapshot

• Question: Could the parent partnership make a late section 754 election after its preparer filed elections only for lower-tier partnerships?
• 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: 202252005 Third Party Communication: None
Release Date: 12/30/2022 Date of Communication: Not Applicable
Index Numbers: 9100.15-00
Person To Contact:
---------------- -----------------, ID No. -----------------
------------------------ Telephone Number:
------------------------------ --------------------
---------------------------------- Refer Reply To:
-------------------------- CC:PSI:03
PLR-109406-22
Date:
October 6, 2022

Legend:

X: -------------------------

State: -------------

Date 1: -------------------------

Date 2: ------------------ -------

Year: ----------------

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

  This letter responds to a letter dated May 2, 2022, and subsequent

correspondence 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”).

                                           FACTS

    X is a limited liability company formed under the laws of State that owns several

entities that are taxed as partnership for Federal tax purposes (“LTPs”). Following the
death of one of X’s members on Date 1, the members and advisors agreed to make a
timely 754 elections for all relevant entities for their Year tax year in order to receive a
basis step up under § 743 of the Code. On Date 2, X’s representative sent a letter to
X’s return preparer advising him that the relevant elections should be made. However,
the return preparer made elections only for X’s LTPs and not X itself.
PLR-109406-22 2

                              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 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 301.9100-2 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 the evidence (including affidavits described in § 301.9100-3(e)) to establish to
the satisfaction of the Commissioner that the taxpayer acted reasonably and in good
faith, and 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
PLR-109406-22 3

(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.

     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
PLR-109406-22 4

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,

                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)



                             By: __________________________________
                                 Richard T. Probst
                                 Senior Technician Reviewer, Branch 3
                                 Office of Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosure:
Copy of this letter for § 6110 purposes

cc: