Partnership received 120 days to make a late section 754 election

Plain-English summary

A partnership intended to make a section 754 election after an ownership change but failed to file the election on time. It requested discretionary late-election relief. The IRS concluded that the partnership met the regulatory standards and granted 120 days to file the election statement for association with the original return. The relief requires the partnership to make all section 734(b) and 743(b) basis adjustments that would have applied if the election had been timely. Affected partners must also adjust the basis of their partnership interests, even when the related tax year is otherwise closed.

Ruling snapshot

• Question: May the partnership make a late section 754 election after an ownership change?
• Outcome: Approved
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202526003
Third Party Communication: None
Release Date: 6/27/2025
Date of Communication: Not Applicable
Index Numbers: 754.00-00, 9100.15-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PT&E:B03
PLR-117519-24
Date:
March 31, 2025

LEGEND

X = ---------------------------------------------------------------------------------------------------
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Date = ----------------------
1
Date = --------------------------------------------------------------------------------------------------- 2 ---------------------------------------------------------------------------------------------------
= -------------
State

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

This letter responds to a letter dated September 17, 2024, and subsequent correspondence submitted by X requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an election under § 754 of the Internal Revenue Code (Code).

FACTS

The information submitted states that X was organized as a State limited liability partnership on Date 1 and is classified as a partnership for federal tax purposes. On Date 2, X had an ownership change and intended to make an election under § 754 for its taxable year ended Date 2. However, X failed to timely file an election under § 754 for its taxable year ended Date 2.

LAW

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
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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 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 the 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 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 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 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 on 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 for its taxable year ended Date 2. The election should be made in a written statement filed with the appropriate service center for association with X’s return for its taxable year ended Date 2. A copy of this letter should be attached to the statement filed.

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 deductions for
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the 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 limitation 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 as adjusted by the greater of any such deductions allowed or allowable in any prior year had the § 754 election been timely made.

Additionally, affected partner(s) 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, affected partner(s) 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 requested ruling, 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.

Sincerely,

Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

By:______
Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

Enclosure:
Copy of this letter for § 6110 purposes
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