Partnership receives more time to make section 754 election

Plain-English summary

A limited liability company taxed as a partnership intended to make an IRC § 754 election after transactions that it represented were sales or exchanges of partnership interests, but it inadvertently omitted the election from its timely partnership return. The IRS found that the partnership met the standards for discretionary filing relief and granted 120 days to make the election through the specified amended-return or administrative-adjustment procedures. The relief requires the partnership to calculate property-basis adjustments as though the election had been timely, including deductions that would have been allowable in closed years. Affected partners must likewise adjust the bases of their partnership interests to reflect that treatment. If an administrative adjustment request is required, the partnership must also comply with IRC § 6227(b). The IRS did not decide whether the partnership was otherwise eligible to make the election.

Ruling snapshot

• Question: May the partnership make a late IRC § 754 election for the year in which partnership interests were transferred?
• Outcome: Approved, with 120 days to file and with retroactive partnership-property and partner-basis adjustments
• Key authorities: IRC §§ 734(b), 743(b), 754, 6227(b); 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: 202535006
Third Party Communication: None
Release Date: 8/29/2025
Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00,
9100.15-00
Person To Contact:
--------------, ID No. -----------------
------------------------------
Telephone Number:
--------------------------
--------------------
----------------------------
Refer Reply To:
----------------------------
CC:PT&E:B03
PLR-121736-24
Date:
May 28, 2025

LEGEND

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

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

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

Date 3 = --------------------------

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

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

This letter responds to a letter dated December 3, 2024, submitted on behalf of X by its authorized representative, 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

According to the information submitted, X is a limited liability company organized under the laws of State on Date 1 and is treated as a partnership for federal tax purposes. On Date 2, X engaged in a series of transactions that X represents resulted in the sale or exchange for federal tax purposes of interests in X. X intended to make a § 754 election for the taxable year ending Date 3. However, X inadvertently failed to timely file the election with its partnership return for the taxable year ended Date 3.
PLR-121736-24
2

LAW AND ANALYSIS

Section 754 provides, in part, that if a partnership files an election, in accordance with 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 applies 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, 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 not later than the time prescribed by § 1.6031(a)-1(e) (including extensions) for filing the return for such taxable year.

Under § 301.9100-1(c), 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 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 the rules governing automatic extensions of time for making certain elections. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for making regulatory elections that do not meet the requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 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 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 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 its taxable year ending Date 3. The election should be made in a written statement filed with the appropriate service center accompanying Form 1065-X,
PLR-121736-24
3

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, to be associated with X’s taxable year ending Date 3. 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 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 limitations 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 adjusted by the greater of any such deductions allowed or allowable in any prior year had the § 754 election had been timely made.

If X is required to file an AAR 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).

Finally, affected 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, affected 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 request for rulings, 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-121736-24
4

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

Sincerely,

Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

By: ______
Brian J. Barrett
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs, Trusts, and Estates)

Enclosure:
Copy of this letter for § 6110 purposes

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

----------------------------------
--------------------------------------------------
-------------------------------------------------------