IRS grants 120 days to make a late partnership basis election

Plain-English summary

A limited liability company taxed as a partnership missed the deadline to elect under IRC § 754 after a 50 percent general partner died. That election allows the partnership to adjust the basis of its property following a transfer of a partnership interest. The partnership asked for an extension under the § 301.9100-3 relief rules. The IRS found that the applicable requirements were satisfied and granted 120 days from the letter date to make the election effective for the year of the partner's death and later years. The relief requires the partnership and its partners to make the basis and depreciation adjustments that would have applied if the election had been timely, including adjustments for years closed by the statute of limitations. The IRS did not decide whether the company qualified as a partnership for federal tax purposes.

Ruling snapshot

• Question: May the partnership receive extra time to make a § 754 election that it inadvertently failed to file for the year a partner died?
• Outcome: Approved, with a 120-day extension and required retroactive basis adjustments.
• Key authorities: IRC §§ 754, 734(b), 743(b); Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-2, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202518011
Third Party Communication: None
Release Date: 5/2/2025
Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PT&E:B01
PLR-114508-24
Date:
February 03, 2025

LEGEND

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

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

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

Year = -------

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

This letter is in response to your request dated July 29, 2024, submitted on behalf of X, 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.

FACTS

According to the information submitted, X is a domestic limited liability company organized under the laws of State. X is treated as a partnership for federal income tax purposes. A, the owner of a 50% general partnership interest in X, died on Date 1. X inadvertently failed to make a timely election under § 754 for the year of A‘s death.

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 shall be adjusted, in the case of a transfer of a partnership interest, in the manner provided in

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§ 743. Such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interest 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 § 743(b), with respect to 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 transfer occurs. For the election to be valid, the return must be filed not later than the time prescribed by Treasury Regulation § 1.6031-1(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 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. Treas. Reg. § 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 or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections. Treas. Reg. § 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 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 the taxpayer acted reasonably and in good faith, and 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 120 days from the date of this letter to make an election under § 754 effective for its Year taxable year and thereafter. The election should be made in a written statement filed with the appropriate service center. A copy of this letter should be attached to the § 754 election.

Except as expressly set forth above, no opinion is expressed or implied concerning the federal tax consequences of the facts discussed above under any other provision of the Internal Revenue Code. Specifically, we express no opinion as to whether or not X is a partnership for federal tax purposes.

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This ruling is contingent on X adjusting 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 depreciation 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 depreciation deduction allowable for an open year is to be computed based upon the remaining useful life and using property basis as adjusted by the greater of any depreciation deduction allowed or allowable in any prior year had the § 754 election been timely made. 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 depreciation that would have been allowable if the § 754 election had been timely made.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Internal Revenue 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 X’s authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

By: __/s/______

Joy C. Spies
Senior Technician Reviewer, Branch 1
Office of Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

Enclosure
Copy for § 6110 purposes

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