Foreign partnership receives 120 days to make a late section 754 election

Plain-English summary

A foreign company classified as a partnership for federal tax purposes intended to make a section 754 election but failed to attach it to the return for the requested year. The IRS found that the discretionary relief requirements were satisfied and granted 120 days to make the election. The partnership must file the election statement with Form 1065-X or Form 8082 and any related administrative adjustment request filings. Relief is conditioned on reconstructing all section 734(b) and 743(b) basis adjustments and allowed-or-allowable recovery deductions as if the election had been timely, even for closed years. The partnership must account for section 6227(b) adjustments, affected partners must correct their partnership-interest bases, and the ruling does not determine whether the partnership is otherwise eligible for the election.

Ruling snapshot

• Question: May the foreign partnership make a late section 754 election for the requested tax year?
• Outcome: Approved, with 120 days and retroactive basis-adjustment conditions
• Key authorities: IRC §§ 734(b), 743(b), 754, 6227(b); 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: 202444002 Third Party Communication: None
Release Date: 11/1/2024 Date of Communication: Not Applicable
Index Numbers: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00 Person To Contact:
-----------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
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------------------------------------------------------------ Refer Reply To:
------------------------------------------------------------ CC:PSI:B03
---------- PLR-106618-24
------------------------------------------------- Date:
---------------------------------- July 31, 2024

LEGEND:

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

Country = ---------

Date = --------------------------

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

  This letter responds to a letter dated April 3, 2024, and subsequent

correspondence submitted on behalf of X, 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 (Code).

                                                  FACTS

   X, a Country company that is classified as a partnership for federal tax purposes,

intended to make a § 754 election for its taxable year ended Date. However, X failed to
timely file an election under § 754 with its partnership return for its taxable year ended
Date.

PLR-106618-24 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 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) defines the term “regulatory
election” as including 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 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 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 its taxable year ended Date. 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

PLR-106618-24 3

Inconsistent Treatment or AAR, and for any related filings as instructed in Form 1065-X
or Form 8082 as appropriate, for X’s taxable year ended Date. 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 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.

   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 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, 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 this 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 is 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-106618-24 4

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

copy of this letter to your authorized representatives.

                                            Sincerely,

                                            Associate Chief Counsel
                                            (Passthroughs & Special Industries)



                                   By:      _______________________________
                                            Mary Beth Carchia
                                            Senior Technician Reviewer, Branch 3
                                            Office of Associate Chief Counsel
                                            (Passthroughs & Special Industries)

Enclosure:
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