Late partnership section 754 election approved

Plain-English summary

A limited liability company treated as a partnership failed to timely elect under IRC § 754 after a buyer purchased partnership interests in a transaction the company treated as a disguised sale. The IRS found that the regulatory requirements for late-election relief were satisfied. It granted 120 days to file the election for the affected year and later years. The relief requires the partnership and its partners to make all basis adjustments that would have applied had the election been timely, even for years whose assessment or refund periods have expired. If an administrative adjustment request is needed, the partnership must file Form 8082 and account for the adjustments under § 6227(b).

Ruling snapshot

• Question: May the partnership make a late IRC § 754 election following transfers of partnership interests?
• Outcome: Approved, with 120 days to file and subject to retroactive partnership and partner basis adjustments
• Key authorities: IRC §§ 734, 743, 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: 202531008
Third Party Communication: None
Release Date: 8/1/2025
Date of Communication: Not Applicable
Index Number: 743.00-00, 754.00-00,
9100.00-00
Person To Contact:
-----------------------, ID No. ----------------- ------------------------------------------------------- Telephone Number:
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----------------------------------------------- Refer Reply To:
CC:PT&E:B01
PLR-120651-24
Date:
April 30, 2025

Legend

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

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

Date = --------------------

Buyer = -----------------------------

Year = -------------------------------------------------

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

This letter responds to a letter received November 12, 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

According to the information submitted, X is a limited liability company organized under the laws of State on Date and is treated as a partnership for Federal tax purposes. On Date, Buyer purchased interests in X from various sellers in a transaction X treated as a disguised sale of a partnership interest. X represents that it inadvertently failed to file a timely § 754 election with its partnership return for Year.

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
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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 by sale or exchange or upon the death of a partner, 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 extension of time 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 facts 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 a § 754 election for Year and thereafter. The election should be made in a written statement filed with the appropriate service center either (1) to be associated with X's partnership tax return for Year, or (2) accompanying Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), and any related filings as
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instructed in Form 8082, as appropriate. A copy of this letter should be attached to the relevant filing(s).

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 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.

If X is required to file an AAR in order to properly amend a partnership tax return, then this ruling is contingent on X filing 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 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 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 as specifically ruled upon 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 rulings 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 request for rulings, it is subject to verification on examination.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) 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 representatives.
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Sincerely,

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

By: ____
Joy Spies
Senior Technician Reviewer, Branch 1
Office of Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

Enclosure:

Copy of this letter for section 6110 purposes

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