Partnership receives 120 days to make a late section 754 election

Plain-English summary

A partnership intended to elect under section 754 after a partner who held an interest through a grantor trust died. It timely filed its partnership return but inadvertently omitted the election. The IRS concluded that the partnership met the requirements for late-election relief and granted 120 days to make the election through the appropriate amended return or administrative adjustment filing. The relief requires the partnership and affected partners to make the property-basis and outside-basis adjustments that would have applied if the election had been timely. Those corrective adjustments apply even where a limitations period has expired.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year of a partnership-interest transfer?
• Outcome: Approved, with 120 days to make the election and all required 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: 202447009 Third Party Communication: None
Release Date: 11/22/2024 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:B01
---------------------------- PLR-103672-24
------------------------------------------------------------ Date:
August 20, 2024

LEGEND

X = -----------------------------
EIN: ----------------

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

Trust = ----------------------------------------------------
EIN: ----------------

N = ---

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

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

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

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

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

  This letter responds to a letter dated February 14, 2024, and subsequent

correspondence, submitted on behalf of X by its authorized representative, 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).
PLR-103672-24 2

                                      FACTS

    According to the information submitted, X was formed as a limited liability

company under the laws of State on Date 1 and is classified as a partnership for federal
tax purposes. A, who owned N% of X through Trust, a grantor trust (under subpart E of
part I of subchapter J of chapter 1 of the Code), died on Date 2. X intended to file a
§ 754 election to adjust the basis of X’s property for the taxable year ending Date 3, but
X inadvertently failed to file the election with its otherwise timely filed return for the
taxable year ending Date 3.

                              LAW AND ANALYSIS

    Section 754 provides that if a partnership files an election, in accordance with

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 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.

   Section 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.
PLR-103672-24 3

Under § 301.9100-3, a request for extension of time 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.
Accordingly, X is granted an extension of time of 120 days from the date of this letter to
make a § 754 election effective for its taxable year ended Date 3. 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 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’s relevant filings 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 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 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, 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 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 a taxpayer is otherwise eligible to make
the election.
PLR-103672-24 4

  The ruling contained in this letter is based upon information and representations

submitted by the taxpayer and accompanied by a penalties 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 that requested 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, we are sending a

copy of this letter to your authorized representative.

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                      By:       /s/
                                                Joy C. Spies
                                                Senior Technician Reviewer, Branch 1
                                                Office of the Associate Chief Counsel
                                                (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: