A partnership that forgot to file a basis-adjustment election gets 120 more days to do it

Plain-English summary

An LLC taxed as a partnership let a new partner buy into the business. When a partnership interest is sold, the partnership can file a Code section 754 election so the buyer gets a basis step-up (or step-down) in the partnership's assets that matches what they paid, which usually produces extra depreciation or amortization deductions. This partnership meant to make the election but missed the deadline, which is tied to the partnership return for that year. It asked the IRS for a late-election extension under the regulations at section 301.9100-3, which the IRS grants when the taxpayer acted in good faith and relief will not hurt the government. The IRS found both tests met and gave the partnership 120 days to file the election. The catch: the partnership and its partners must go back and make all the basis adjustments that would have applied had the election been timely, even for years the statute of limitations has closed. This is a common cleanup for a valuable but easily-missed partnership tax election.

Ruling snapshot

• Question: Should the partnership get an extension of time under Treas. Reg. § 301.9100-3 to make a late § 754 election?
• Outcome: Approved (120-day extension granted, contingent on making the required basis adjustments)
• Key authorities: IRC §§ 743, 754; Treas. Reg. §§ 1.754-1, 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202450004                                             Third Party Communication: None
 Release Date: 12/13/2024                                      Date of Communication: Not Applicable
 Index Number: 754.00-00, 743.00-00,
               9100.00-00                                      Person To Contact:
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 ----------------------------                                  Refer Reply To:
                                                               CC:PSI:01
                                                               PLR-105224-24
                                                               Date:
                                                               September 10, 2024




LEGEND


 X            =      ----------------------------------------------------------------------------------------------
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 A                   ----------------------------------------------------------------------------------------------
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 State               -------------

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

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

 Year         =      -------

 Z            =      --------



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

This letter responds to a letter dated January 29, 2024, 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 an election under § 754 of the Internal
Revenue Code ("Code").
PLR-105224-24                                 2

FACTS

The information submitted states that X is a limited liability company organized under
the laws of State on Date 1 and was treated as a partnership for Federal tax purposes.
On Date 2, A purchased Z% interest in X from X's existing partners. X represents that it
inadvertently failed to timely file a § 754 election with its partnership return for Year.


LAW & 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 by sale or exchange or upon the death of a partner,
in the manner provided in § 743. Such an election shall apply 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, shall 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 not 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 6 months except in the
case of a taxpayer who is abroad), under all subtitles of the Internal Revenue 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 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.
PLR-105224-24                                  3

CONCLUSION

Based solely upon 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 Year and thereafter. The election should be made in a written statement
filed with the appropriate service center either (1) to be associated with X's partnership
tax return for Year, or (2) accompanying Form 8082, Notice of Inconsistent Treatment or
Administrative Adjustment Request (AAR), and any related filings as instructed in Form
8082, as appropriate. A copy of this letter should be attached to the relevant filing(s).

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.

If the partnership is required to file an AAR in order to properly amend a partnership tax
return, then this ruling is contingent on X filing Form 8082 and taking into account the
adjustments as required by § 6227(b).

Additionally, the 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, 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 as specifically ruled upon 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.
PLR-105224-24                                              4


This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) 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:             /s/ Laura C Fields
                                                 Laura Fields
                                                 Chief
                                                 Branch 1
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)

Enclosure
      Copy of letter for § 6110 purposes

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