Partnership receives 120 days to make a late section 754 election

Plain-English summary

A limited liability company taxed as a partnership failed to file an IRC § 754 election for the year in which an owner died holding an interest through a grantor trust. The partnership represented that it had relied on its tax advisers to file the election. The IRS concluded that the partnership satisfied the reasonable-care, good-faith, and no-prejudice standards and granted 120 days to make the election through the appropriate amended filing. The relief requires the partnership to reconstruct property basis and any related deductions as if the election had been timely, even for closed years. The partners must also adjust the bases of their partnership interests, and any required administrative adjustment request must account for the changes under IRC § 6227(b).

Ruling snapshot

• Question: May a partnership make a late IRC § 754 election for the year of a transfer caused by an owner's death?
• Outcome: Approved, with 120 days to file and retroactive basis-adjustment conditions
• Key authorities: IRC §§ 6227(b), 734(b), 743(b), 754; 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: 202536019                                           Third Party Communication: None
 Release Date: 9/5/2025                                      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:01
                                                             PLR-121694-24
                                                             Date:
                                                             June 02, 2025




                                                 LEGEND

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

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

 A             = -------------------------

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

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

 Year          = ------


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

This letter responds to a letter dated November 20, 2024, submitted on behalf of X by
X’s authorized representative, 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 in Year and is treated as a partnership for federal tax purposes. On
Date 1, A died owning an interest in X through A’s grantor trust. X inadvertently failed to
timely file a § 754 election to adjust the basis of X’s property with its return for the
PLR-121694-24                                 2

taxable year ending Date 2, the year of A’s death. X represents that it relied on its tax
advisors to timely file the § 754 election with its return for the taxable year ending
Date 2.

                                  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 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 such 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.

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
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 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 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 upon the information submitted and the representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
PLR-121694-24                                 3

As a result, X is granted an extension of time of one hundred-twenty (120) days from
the date of this letter to make a § 754 election for its taxable year ended Date 3. The
election 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 for 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.

As a condition to this ruling, to the extent that X has not already done so, X must adjust
the basis of its properties on its relevant filings(s) 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 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
recovery of basis allowable for an open year are to be computed based upon the
remaining useful life or recovery period and using property basis as 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 tax return, then
this ruling is 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
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 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
or the regulations thereunder. 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-121694-24                                          4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.


                                                 Sincerely,


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



                                             By:
                                               Jennifer N. Keeney
                                                Senior Counsel, Branch 1
                                                Office of the Associate Chief Counsel
                                                (Passthroughs, Trusts, & Estates)


Enclosure (1)
      Copy of letter for § 6110 purposes

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