Partnership received more time to make a Section 754 election

Plain-English summary

A partnership intended to make a Section 754 election but did not attach a valid election to its return by the deadline. The IRS found that the partnership satisfied the standards for regulatory-election relief and gave it 120 days to file a written election with the appropriate amended return or administrative adjustment request. The relief requires the partnership to make all Section 734(b) and 743(b) basis adjustments that would have applied if the election had been timely, including deductions attributable to earlier years even when limitation periods have expired. The partnership also must make the required Section 6227(b) adjustments, and affected partners must adjust the bases of their partnership interests to the amounts that would have resulted from a timely election.

Ruling snapshot

• Question: May the partnership make a late Section 754 election?
• Outcome: Approved, subject to basis-adjustment and amended-filing conditions
• Key authorities: IRC §§ 6227(b), 734(b), 743(b), 754; Treas. Reg. §§ 1.754-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202418006                                              Third Party Communication: None
 Release Date: 5/3/2024                                         Date of Communication: Not Applicable
 Index Number: 754.00-00, 754.02-00,
               9100.00-00, 9100.15-00                           Person To Contact:
                                                                --------------, ID No. -----------------
 ----------------------------------------------                 Telephone Number:
 ----------------------------                                   --------------------
 -------------------------------------------                    Refer Reply To:
 ------------------------                                       CC:PSI:B03
 -----------------------------------                            PLR-115772-23
                                                                Date:
                                                                February 7, 2024




Legend

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

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

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

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


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

       This letter responds to a letter dated July 27, 2023, and subsequent
correspondence, submitted on behalf of X by its authorized representatives, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to file elections under § 754 of the Internal Revenue Code (Code).

                                                        FACTS

         X, a limited liability company organized under the laws of State on Date 1,
intended to make a § 754 for its taxable year ended Date 2. However, X failed to timely
file a valid election under § 754 with its partnership return for the taxable year ended
Date 2.
PLR-115772-23                                 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
an 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 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, 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 no later than the time prescribed by § 1.6031(a)-1(e)
(including extensions) for filing the return for such 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 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) 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 relief 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 (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 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 a valid election under § 754 effective for X’s taxable year ended Date 2. 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
PLR-115772-23                                  3

filings as instructed in Form 1065-X or Form 8082, as appropriate. A copy of this letter
should be attached to the relevant filing.

        This ruling is contingent on X’s relevant filing(s) containing adjustments to the
basis of its 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 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 limitations 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 adjusted by the greater of any such
deductions allowed or allowable in any prior year had the § 754 election been timely
made.

       Additionally, this ruling is contingent on X filing Form 1065-X or Form 8082 and
taking into account the adjustments as required by § 6227(b).

        Finally, affected partners of X must adjust the basis of their interests in X to
reflect what the basis would be if the § 754 election had been timely made, regardless
of whether the statutory period of limitations on assessment or filing a claim for refund
has expired for any year subject to this grant of late relief. Specifically, affected
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 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 ruling 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 requested ruling, 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-115772-23                                           4

         In accordance with the power of attorney on file with this office, a copy of this
letter is being sent to your authorized representatives.


                                                  Sincerely,

                                                  Associate Chief Counsel
                                                  (Passthroughs & Special Industries)


                                               By: _____________________________
                                                  Richard T. Probst
                                                  Senior Technician Reviewer, Branch 3
                                                  (Passthroughs & Special Industries)


Enclosure:
      Copy of this letter for § 6110 purposes




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