Three partnerships received late section 754 election relief

Plain-English summary

An individual held interests in three partnerships through two trusts. After the individual died, the partnerships intended to elect under section 754 to adjust the basis of partnership property, but their tax advisers did not file valid elections with the partnership returns. The IRS found that the partnerships met the standards for regulatory relief and granted 120 days to make the elections for the specified tax year. The relief requires the partnerships and partners to make all basis and deduction adjustments that would have applied if the elections had been timely, even for years otherwise closed by a limitations period. If an administrative adjustment request is required, the partnerships must also comply with section 6227(b).

Ruling snapshot

• Question: May three partnerships make late section 754 elections after a partner's death transferred interests held through trusts?
• Outcome: Approved, with 120 days to make the elections and required retroactive basis adjustments
• Key authorities: IRC §§ 734(b), 743(b), 754, 6227(b); Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202441003 Third Party Communication: None
Release Date: 10/11/2024 Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
9100.15-00 Person To Contact:
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------------------------------ Telephone Number:
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-------------------------------- Refer Reply To:
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-------------------- PLR-100868-24
------------------------------------ PLR-100869-24
-------------------------- PLR-100870-24
----------------------------------- Date:
July 15, 2024

LEGEND

X = ------------------------------
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Y = -----------------------------------
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Z = --------------------------------
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A = -----------------------
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Trust 1 = -------------------------------------------------------------------
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Trust 2 = ----------------------------------------------------
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State = -------------

PLR-100868-24 through 2
PLR-100870-24

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

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

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

Date 4 = --------------------------

Date 5 = --------------------------

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

  This letter responds to a letter dated December 12, 2023, and subsequent

correspondence, submitted on behalf of X, Y and Z by their authorized representatives,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for X, Y and Z to file an election under § 754 of the Internal
Revenue Code (Code).

                                              FACTS

   The information submitted states that X, Y, and Z are limited liability companies

formed under the laws of State on Date 1, Date 2 and Date 3, respectively, that are
treated as partnerships for federal tax purposes. On Date 4, A died. At that time, A
held interests in X, Y and Z through Trust 1 and Trust 2. Due to A’s death, X, Y and Z
intended to file § 754 elections to adjust the basis of X, Y and Z’s property for the
taxable year ending Date 5 and relied on its tax advisors to timely file the election.
However, X, Y and Z inadvertently failed to file valid elections under § 754 with each
respective partnership return for the taxable year ending Date 5. X, Y and Z each
represent that they have acted reasonably and in good faith, and that granting relief will
not prejudice the interests of the Government.

                                       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, 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.

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    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 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 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 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, Y and Z are granted an extension of time of 120 days from the date of
this letter to make valid elections under § 754 effective for the taxable year ending Date

5. The elections should be made in a written statement filed with the appropriate
   service center either (1) to be associated with X’s tax return for the taxable year ending
   Date 2, or (2) 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.

   This ruling is contingent on X, Y and Z'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 elections had been timely made. These basis adjustments
   must reflect any additional deductions for recovery of basis related to X, Y and Z's
   property that would have been allowable if the § 754 elections had been timely made,

PLR-100868-24 through 4
PLR-100870-24

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.

   If the partnerships are required to file an AAR in order to properly amend a

partnership tax return, then this ruling is contingent on X, Y and Z filing Form 8082 and
taking into account the adjustments as required by § 6227(b).

    Additionally, the partners of X, Y and Z must adjust the basis of their interests in

each partnership 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, Y and Z must reduce the basis of their interests in each
partnership 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.

  The rulings are only directed to the taxpayers requesting it. Section 6110(k)(3) of

the Code provides that it may not be used or cited as precedent.

PLR-100868-24 through 5
PLR-100870-24

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to X, Y, and Z’s authorized representatives.

                                           Sincerely,

                                           Associate Chief Counsel
                                           (Passthroughs & Special Industries)



                                       By:
                                             Richard T. Probst
                                             Senior Technician Reviewer, Branch 3
                                             Office of Associate Chief Counsel
                                             (Passthroughs & Special Industries)

Enclosure:
Copy of this letter for § 6110 purposes

cc: ------------------
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