Partnership receives limited time to make a late § 754 election

Plain-English summary

A limited liability company taxed as a partnership intended to make a § 754 election but inadvertently failed to file a valid election with its partnership return. The IRS concluded that the partnership satisfied the relief standards under the § 301.9100 regulations. It granted until the earlier of 120 days from the letter date or expiration of the partnership's assessment limitations period to make the election through the appropriate amended-return or administrative-adjustment filing. The partnership must make all property-basis and basis-recovery adjustments that would have applied if the election had been timely, even for closed years. Its partners must make corresponding outside-basis adjustments, and any required administrative adjustment request must account for § 6227(b). The IRS did not decide whether the partnership was otherwise eligible for the election.

Ruling snapshot

• Question: May a partnership receive extra time to make an inadvertently missed § 754 election?
• Outcome: Approved, until the earlier of 120 days or expiration of the relevant limitations period.
• Key authorities: IRC §§ 6227(b), 734(b), 743(b), 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: 202516006 Third Party Communication: None
Release Date: 4/18/2025 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:
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----------------------------------- Refer Reply To:
------------------------- CC:PT&E:B01
------------------------------------ PLR-115317-24
Date:
January 16, 2025

Legend

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

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

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

State = ------

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

  This letter responds to a letter dated July 8, 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 an election under § 754 of the Internal Revenue Code (Code).

                                                 FACTS

     The information submitted states that X was formed on Date 1 as a limited

liability company under the laws of State and is treated as a partnership for federal tax
purposes. X intended to make an election under § 754 for its taxable year ended Date

2. However, X inadvertently failed to timely file a valid election under § 754 with its
   partnership return for the taxable year ended Date 2.
   PLR-115317-24 2

                              LAW AND 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, 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 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, X is granted an extension of time of the earlier of 120 days from the date of
   this letter or the expiration of X’s statute of limitations for its taxable year ended Date 2
   to make an election under § 754 effective for X’s taxable year ended Date 2. The
   election should be made in a written statement filed with the appropriate service center
   PLR-115317-24 3

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, for X’s taxable year ended
Date 2. A copy of this letter should be attached to the relevant filing.

    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 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 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 such deductions
allowed or allowable in any prior year had the § 754 election been timely made.

   If X is required to file an AAR in order to properly amend a partnership return,

then this ruling is also contingent on X filing Form 1065-X or 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 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 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 ruling request, 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.
PLR-115317-24 4

     In accordance with the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

                                               Sincerely,

                                               Jeffrey Erickson
                                               Associate Chief Counsel
                                               (Passthroughs, Trusts, and Estates)


                                           By:________________________________
                                              Jennifer Keeney
                                              Senior Counsel, Branch 1
                                              Office of the Associate Chief Counsel
                                              (Passthroughs, Trusts, and Estates)

Enclosure
Copy of letter for § 6110 purposes

cc: ----------------------------------
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