Partnership received 120 days to make a late section 754 election

Plain-English summary

An LLC that had changed from disregarded-entity to partnership status intended to make an IRC § 754 election when a buyer acquired a percentage interest, but did not timely file it. The IRS concluded that the partnership met the standards for late regulatory-election relief and granted 120 days to file the election through Form 1065-X or Form 8082. The partnership must reconstruct all resulting § 734(b) and § 743(b) basis adjustments as if the election had been timely, including allowed-or-allowable deductions in closed years, and affected partners must make corresponding outside-basis adjustments. The ruling does not determine whether the partnership is otherwise eligible for the election.

Ruling snapshot

• Question: May the partnership receive additional time to make a section 754 election for the year of the buyer’s interest acquisition?
• Outcome: Approved, with a 120-day extension subject to corrective basis and filing 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: 202509004
Third Party Communication: None
Release Date: 2/28/2025
Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.15-00,
754.00-00, 754.02-00
Person To Contact:
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Refer Reply To:
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CC:PSI:B03
PLR-110348-24
Date:
November 22, 2024

Legend

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

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

This letter responds to a letter dated May 9, 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 was formed under the laws of State on Date 1 and was classified as an entity disregarded as separate from its owner. Before Date 2, Company added partners and became automatically classified as a partnership. On Date 2, Buyer agreed to purchase x% of Company. Company and Buyer intended for Company to make a § 754 election for Company’s taxable year ending Date 3. However, Company failed to timely file the election.
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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,
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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 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 requested ruling, it is subject to verification on examination.
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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,

Holly Porter
Associate Chief Counsel (Passthroughs &
Special Industries)

By: Richard T. Probst
Senior Technician Reviewer, Branch 3
(Passthroughs & Special Industries)

Enclosure:
Copy of this letter for § 6110 purposes

cc: