Partnership received late-election relief after a partner's death

Plain-English summary

After a partner died, a partnership intended to make a Section 754 election to adjust the basis of partnership property, but the election was inadvertently omitted from its timely return despite reliance on tax advisers. The IRS found that the standards for regulatory-election relief were satisfied and granted 120 days to file the election with the appropriate amended-return or administrative-adjustment filing. The partnership and its partners must reconstruct property basis, deductions, and outside basis as though the election had been timely, even for affected closed years. If an administrative adjustment request is required, the partnership must also account for adjustments under Section 6227(b).

Ruling snapshot

• Question: May the partnership receive additional time to make a Section 754 election following a partner's death?
• Outcome: Approved for 120 days, subject to retroactive basis adjustments
• Key authorities: IRC §§ 734(b), 743(b), 754, and 6227(b); Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202409003
Third Party Communication: None
Release Date: 3/1/2024
Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:01
----------------------------------------------------------- PLR-111647-23 Date:
December 01, 2023

LEGEND

X = ----------------------------------------------------------------------------------------------
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A = ----------------------------------------------------------------------------------------------
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State = -------------

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

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

Date 3 = --------------------------

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

This letter responds to a letter dated May 18, 2023, submitted on behalf of X by its authorized representative, 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.

FACTS

The information submitted states that X was organized as a limited liability company under the laws of State on Date 1 and was classified as a partnership for Federal tax
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purposes. A, a partner in X, died on Date 2. X’s tax return for its taxable year ending Date 3 was timely filed. Due to A’s death, X intended to file a § 754 election to adjust the basis of X’s property for the taxable year ending Date 3, but X inadvertently failed to timely file the election with its return for the taxable year ending Date 3. X represents that it relied on its tax advisors to timely file the § 754 election with its return for the taxable year ending Date 3.

LAW AND ANALYSIS

Section 754 provides 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 by sale or exchange or upon the death of a partner, 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) 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(a)-1(e) (including extensions thereof) for filing the return for that taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 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 Internal Revenue 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 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.

Under § 301.9100-3, a request for extension of time 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 (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 upon 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, X is granted an extension of time of 120 days from the date of this letter to make an election under § 754 effective for X’s taxable year ended Date 3. The election should be made in a written statement filed with the appropriate service center accompanying Form 1065-X, Amended Return or Administrative Adjustment Request (AAR), or Form 8082, Notice of Inconsistent Treatment or AAR, and for any related filings as instructed in Form 1065-X or Form 8082, as appropriate. A copy of this letter should be attached to the relevant filing.

As a condition to this ruling, to the extent that X has not already done so, X must adjust the basis of its properties on its relevant filings(s) 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 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 recovery of basis allowable for an open year are to be computed based upon the remaining useful life or recovery period and using property basis as adjusted by the greater of 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 return, then this ruling is also contingent on X filing Form 1065-X or Form 8082 and taking into account the adjustments 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 members of X must reduce the basis of their interests in X in the amount of any additional depreciation that would have been allowable if the § 754 election had been timely made.

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

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

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

Enclosure
Copy for § 6110 purposes

cc: