Extension granted for late section 754 election

Plain-English summary

A partnership failed to make a timely section 754 election for the year in which a new partner purchased an interest from existing partners. It represented that the failure was inadvertent, that it acted reasonably and in good faith, and that granting relief would not prejudice the government. The IRS granted 120 days to make the election by filing the required statement with Form 8082 and related filings. The relief requires the partnership and its partners to reconstruct all basis adjustments, deductions, and partner-interest basis reductions as though the election had been timely, even for closed years. If an administrative adjustment request is required, the partnership must also make the adjustments required by section 6227(b).

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year a partnership interest was transferred?
• Outcome: Approved, subject to 120-day filing and retroactive basis-adjustment conditions
• Key authorities: IRC §§ 734(b), 743(b), 754, and 6227(b); Treas. Reg. §§ 1.754-1, 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202347008                                              Third Party Communication: None
 Release Date: 11/24/2023                                       Date of Communication: Not Applicable
 Index Number: 754.00-00, 9100.00-00,
               9100.15-00                                       Person To Contact:
                                                                ----------------------------, ID No. --------------
 -------------------------                                      -----------------
 ----------------------------------------------------           Telephone Number:
 ------------------------------------------                     ---------------------
 -------------------------                                      Refer Reply To:
 ----------------------------------------------------           CC:PSI:1
                                                                PLR-105851-23
                                                                Date:
                                                                August 25, 2023




LEGEND

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

A                 =         ----------------------------
--------------------------------------------------

a                 =        -----------

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

Date              =        ----------------------

Year              =        ------------------------------------------------------------

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

      This responds to the letter dated March 17, 2023, and related correspondence,
submitted on behalf of X, 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-105851-23                                 2

FACTS

        Based on the materials submitted on behalf of X, we understand the relevant
facts to be as follows. X was formed as a limited liability company under the laws of
State. X is treated as a partnership for Federal tax purposes. On Date, A purchased
an a% interest in X from X’s existing partners.

        X inadvertently failed to timely make an election under § 754 for Year, the year of
A's purchase. X represents that it has acted reasonably and in good faith, that granting
relief will not prejudice the interests of the government, and that it is not using hindsight
in making the election.

LAW AND ANALYSIS

       Section 754 provides that if a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership property shall be
adjusted, 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 interest in the partnership during the taxable year with
respect to which the election was filed and all subsequent tax 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, 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 § 1.6031-1(e)
(including extensions thereof) for filing the return for that 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 deadline is prescribed by a regulation published in the
Federal Register.

        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.

        Section 301.9100-3(a) provides that requests for relief subject to § 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
PLR-105851-23                                  3

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
accompanying Form 8082, Notice of Inconsistent Treatment or Administrative
Adjustment Request (AAR), and any related filings as instructed in Form 8082, for X’s
Year taxable year. A copy of this letter should be attached to the 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 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 bases 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.

        A copy of this letter must be attached to any 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.

       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. In addition, § 301.9100-1(a) provides that the granting of an
PLR-105851-23                                 4

extension of time for making an election is not a determination that the taxpayer is
otherwise eligible to make the election.

      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.

       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.

        Pursuant to the power of attorney on file with this office, we are sending a copy of
this letter to your authorized representatives.



                                          Sincerely,

                                          Holly Porter
                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)




                                     By: ______/S/______________________
                                         Joy Spies
                                         Senior Technician Reviewer, Branch 1
                                         Office of Associate Chief Counsel
                                         (Passthroughs & Special Industries)


Enclosure:

       Copy of this letter for section 6110 purposes



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