LLC received conditional relief for late Section 754 election

Plain-English summary

A limited liability company taxed as a partnership inadvertently failed to make a Section 754 election for the year one of two spouses holding an interest as community property died. Based solely on the submitted facts and representations, the IRS found that the regulatory-relief requirements were satisfied and granted 120 days to make the election for that year and later years. The partnership must file the election with the appropriate service center, either for association with its original partnership return or with Form 8082 as an administrative adjustment request. The relief requires the partnership to make the Section 734(b) and 743(b) basis adjustments and allowed-or-allowable basis-recovery deductions that would have applied had the election been timely. Its partners must likewise adjust their outside bases, and any required administrative adjustment request must account for Section 6227(b).

Ruling snapshot

• Question: May the partnership make a late Section 754 election for the year a community-property owner of a partnership interest died?
• Outcome: approved, with conditions
• Key authorities: IRC §§ 734(b), 743(b), 754, 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: 202416006                                            Third Party Communication: None
 Release Date: 4/19/2024                                      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:01
 --------------------------------                             PLR-114460-23
                                                              Date:
                                                              January 17, 2024




                                                  LEGEND

 X              = ----------------------------------------------------------------------------------------------
                  ---------------------------
 A                ----------------------------------------------------------------------------------------------
                  -----------------------------
 B                ----------------------------------------------------------------------------------------------
                  -----------------------------
 State          = -------------
 Date 1         = ----------------------
 Date 2         = ---------------------
 Year           = -------
 Z                ---


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

This letter responds to a letter dated July 18, 2023, and subsequent correspondence,
submitted on behalf of X by X’s 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

The information submitted states that X is a limited liability company organized under
the laws of State on Date 1. X is treated as a partnership for Federal tax purposes. A
and B owned, as community property, a Z% interest in X. On Date 2, A, died. X
represents that it inadvertently failed to timely file a § 754 election with its partnership
return for Year.
PLR-114460-23                                 2


                                  LAW AND ANALYSIS

Section 754 provides, in part, 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, in the manner provided in § 743. Such
election 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, in part, 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 the taxable year.

Section 301.9100-1(c) of the Procedure and Administration Regulations provides that
the Commissioner may grant a reasonable extension of time 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 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 the Commissioner will
use to determine whether to grant an extension of time to make an election. 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.

Under § 301.9100-3, 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 (1) the taxpayer acted reasonably and in good
faith, and (2) the grant of relief will not prejudice the interests of the Government.

                                      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 a § 754
election for 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 partnership
PLR-114460-23                                 3

tax return for Year, 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(s).

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 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 specifically ruled upon 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.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.
PLR-114460-23                                          4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.


                                                 Sincerely,

                                                 Holly Porter
                                                 Associate Chief Counsel
                                                 (Passthroughs & Special Industries)



                                           By:
                                                 Laura C. Fields
                                                 Branch Chief, Branch 1
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)



Enclosure
Copy for § 6110 purposes




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