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:
----------------------------------------------- --------------------, ID No. -----------------
---------------------------- Telephone Number:
------------------- --------------------
------------- Refer Reply To:
-------------------------------- CC:PSI:01
----------------------------------------------------------- PLR-111647-23
Date:
December 01, 2023

                                                LEGEND

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

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

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
PLR-111647-23 2

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.
PLR-111647-23 3

                                  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.
PLR-111647-23 4

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: