Partnership received 120 days to make a late section 754 election

Plain-English summary

A foreign limited partnership intended to make a section 754 election but inadvertently omitted the election from its timely partnership return. The IRS found that the partnership satisfied the regulatory relief standards and granted 120 days to make the election for the affected year. The partnership must use the appropriate amended return or administrative adjustment procedure and include all section 734(b) and 743(b) basis consequences that would have applied if the election had been timely. Its partners must make corresponding outside-basis adjustments, even for years whose assessment or refund limitations periods have expired.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the specified tax year?
• Outcome: Approved, subject to filing and basis-adjustment conditions within 120 days
• Key authorities: IRC §§ 734, 743, 754, and 6227(b); Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202521017 Third Party Communication: None
Release Date: 5/23/2025 Date of Communication: Not Applicable
Index Number: 9100.15-00, 754.00-00
Person To Contact:
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Date:
February 27, 2025

LEGEND:

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

Country = ----------

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

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

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

This letter responds to a letter dated October 3, 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).

                                                 FACTS

The information submitted states that X, a Country limited partnership formed on Date 1
that is treated as a partnership for federal tax purposes, intended to make an election
under § 754 for its taxable year ended Date 2. However, X inadvertently failed to timely
file an election under § 754 with its partnership return for the taxable year ended Date 2.

PLR-120148-24 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 120 days from the date of this letter to
make an election under § 754 effective for X’s taxable year ended Date 2. The election

PLR-120148-24 3

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, and 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 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) provides that
it may not be used or cited as precedent.

PLR-120148-24 4

In accordance with a power of attorney on file with this office, we are sending a copy of
this letter to X’s authorized representative.

                                             Sincerely,

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


                                          By: _/s/_________________________________
                                             Brian J. Barrett
                                             Senior Technician Reviewer, Branch 3
                                             (Passthroughs, Trusts, and Estates)

Enclosure:
Copy for § 6110 purposes

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