Partnership receives 120 days for late section 754 election

Plain-English summary

A partnership timely filed its return for the year in which one of its partners died but omitted a section 754 election. That election would allow a basis adjustment to partnership property following the transfer of the deceased partner's interest. The IRS found that the partnership met the standards for regulatory relief and granted 120 days to make the election effective for that year and later years. The partnership must make the property-basis and recovery deductions that would have applied if the election had been timely, even for years whose limitation periods have expired. Its partners must make corresponding outside-basis adjustments. If an administrative adjustment request is required, the partnership must file Form 8082 and account for the changes under section 6227(b).

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year of a partner's death?
• Outcome: Approved, with a 120-day extension and corrective-adjustment conditions
• Key authorities: IRC §§ 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: 202326001                                              Third Party Communication: None
 Release Date: 6/30/2023                                        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:B03
 ------------------------------                                 PLR-101080-23
 ----------------------------                                   Date:
 -----------------------------                                  March 30, 2023




RE: ---------------------------------


Legend

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

 State      = --------

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

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

 Year       = -------

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

       This letter responds to a letter dated December 30, 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 for X to file an election under § 754 of
the Internal Revenue Code (Code).

                                                     FACTS

        The information submitted states that X was formed on Date 1 under the laws of
State and is classified as a partnership for federal tax purposes. On Date 2, one of X’s
partners died. X represents that X’s tax return for Year was timely filed, but X failed to
file a § 754 election with the return.
PLR-101080-23                                 2




                                  LAW AND ANALYSIS

       Section 754 provides, in part, that if a partnership files an election, in accordance
with regulations prescribed by the Secretary, the basis of partnership property is
adjusted in the case of a transfer of a partnership interest, in the manner provided
in § 743. Such an election applies with respect 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 § 743(b), with respect to 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(a)-1(e) (including extensions thereof) for filing the return for that
taxable year.

       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 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), 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 the taxpayer acted reasonably and in good faith,
and that granting relief will not prejudice the interests of the Government.

                                      CONCLUSION

        Based solely on the facts submitted and 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.
PLR-101080-23                                3

       This ruling is contingent on X's relevant filing(s) containing adjustments to the
basis of X's properties to reflect any § 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. A copy of this letter should be attached to all relevant filing(s).

       If X 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, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other provision of
the Code and 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.

       The ruling contained in this letter is 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.

      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-101080-23                                 4


        Pursuant to the power of attorney on file with this office, we are sending a copy of
this letter to X’s authorized representative.


                                                  Sincerely,

                                                   Associate Chief Counsel
                                                  (Passthroughs & Special Industries)


                                                         /s/ Margaret Burow
                                             By: _____________________________
                                                 Margaret Burow
                                                 Senior Counsel, Branch 3
                                                 Office of the Associate Chief Counsel
                                                 (Passthroughs & Special Industries)


Enclosure
      Copy for § 6110 purposes



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