Partnership receives 120 days to make a late section 754 election

Plain-English summary

A limited partnership failed to make a section 754 election for a year in which two partners died because its tax advisers did not adequately advise it about the election. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to make the election effective for the missed year. The relief requires the partnership to reconstruct all section 734(b) and 743(b) basis adjustments and allowed-or-allowable deductions as if the election had been timely, even for closed years. The partnership must use an administrative adjustment request when required, and affected partners must adjust their partnership-interest bases to the amounts that would have resulted from a timely election.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year in which two partnership interests transferred at death?
• 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: 202445008 Third Party Communication: None
Release Date: 11/8/2024 Date of Communication: Not Applicable
Index Number: 9100.15-00, 754.00-00
Person To Contact:
------------------------------ ----------------------, ID No. -----------------
------------------------------------- Telephone Number:
---------------- --------------------
--------------------------------- Refer Reply To:
------------------------------------ CC:PSI:B03
PLR-102723-24
Date:
August 02, 2024

Legend

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

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

B = ------------------

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

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

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

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

Year = -------

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

  This letter responds to a letter dated January 31, 2024, 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).

PLR-102723-24 2

                                      FACTS

   According to the information submitted, X, is a limited partnership formed under

the laws of State on Date 1. A, a partner in X, died on Date 2 and B, a partner in X, died
on Date 3. X failed to make a § 754 election for the Year taxable year because its tax
advisors at the time failed to adequately advise X about making the election. X
represents that it has acted reasonably and in good faith, and that granting relief will not
prejudice the interests of the Government.

                              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

PLR-102723-24 3

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 one hundred-twenty (120) days from
the date of this letter to make an election under § 754 effective for X’s Year taxable
year.

    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.

    If X is required to file an AAR to properly amend a partnership return, then this

ruling is also contingent on X filing Form 1065-X or Form 8082 and accounting for the
adjustments required by § 6227(b).

    Additionally, the 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

PLR-102723-24 4

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.

     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: __________________________________
                                   Robert D. Alinksy
                                   Branch Chief, Branch 3
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosure:
Copy for § 6110 purposes

cc: