9100 relief for a late section 754 basis-adjustment election

Plain-English summary

An LLC taxed as a partnership meant to make a section 754 election for the year in which new buyers acquired interests in it, but it missed the filing deadline. A section 754 election lets a partnership adjust the tax basis of its assets after a transfer of a partnership interest, which usually gives the incoming partners depreciation and other deductions that better match what they paid. Because the election was late, the partnership asked the IRS for an extension of time under Treasury Regulation section 301.9100-3, the general relief rule for missed regulatory elections. The IRS agreed the partnership acted reasonably and in good faith and that granting relief would not prejudice the government. It granted 120 days from the date of the letter to file a valid section 754 election effective for the year in question. Relief is conditioned on the partnership and its affected partners actually reflecting the basis adjustments that would have applied had the election been timely, even for years now closed by the statute of limitations. The IRS did not decide whether the partnership was otherwise eligible to make the election.

Ruling snapshot

• Question: May a partnership that missed the deadline for a section 754 election get an extension of time to file it?
• Outcome: approved
• Key authorities: IRC § 754; 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: 202505006                                        Third Party Communication: None
 Release Date: 1/31/2025                                  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:B3
 -----------------------------------                      PLR-108788-24
                                                          Date:
                                                          November 04, 2024




LEGEND

 Company = ----------------------------------------------------------------------------------------------
           ----------------------
 State   = -------------
 Date 1  = -------------------------
 Date 2  = ----------------------
 Date 3  = --------------------------
 Buyer 1 = ---------------------------------------------
 Buyer 2 = -------------------------
 Buyer 3 = ---------------------


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

      This letter responds to a letter dated May 1, 2024, submitted on behalf of
Company 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).

                                                FACTS

        Company is a limited liability company formed under the laws of State on Date 1
and classified as a partnership for federal tax purposes. On Date 2, Buyer 1, Buyer 2
and Buyer 3 acquired interests in Company. Company intended to make a § 754
election for Company’s taxable year ending Date 3. However, Company failed to timely
file the election.
PLR-108788-24                                 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 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 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, Company is granted an extension of time of 120 days from the date of this
letter to make a valid election under § 754 effective for Company's 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,
PLR-108788-24                                 3

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 Company'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 Company'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. Additionally, this ruling is contingent on Company filing Form 1065-X
or Form 8082 and taking into account the adjustments as required by § 6227(b).

        Finally, affected partners of Company must adjust the basis of their interests in
Company 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 Company must reduce the basis of their interests in Company in the
amount of any additional deductions for the recovery of basis related to Company’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 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.
PLR-108788-24                                                4

      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.


                                                     Sincerely,


                                                     Associate Chief Counsel
                                                     (Passthroughs & Special Industries)



                                                 By: _____________________________
                                                    Robert D. Alinsky
                                                    Branch Chief, Branch 3
                                                    (Passthroughs & Special Industries)



Enclosure:
      Copy of this letter for § 6110 purposes



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