Partnership received 120 days to make section 754 election after partner's death

Plain-English summary

A partner died during a partnership's taxable year, but the partnership inadvertently failed to make a valid § 754 election with that year's return. The IRS found that the partnership met the standards for regulatory-election relief and granted 120 days to file the election. Relief was conditioned on making all property-basis and partner-basis adjustments as though the election had been timely, including deductions that would have been allowable in closed years. If an administrative adjustment request was required, the partnership also had to comply with § 6227(b).

Ruling snapshot

• Question: Could a partnership obtain additional time to make a § 754 election after a partner died and the election was omitted from the return?
• Outcome: Relief approved, with 120 days to make the election
• Key authorities: IRC §§ 734, 743, 754; 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: 202538009 Third Party Communication: None
Release Date: 9/19/2025 Date of Communication: Not Applicable Index Number: 754.00-00, 754.02-00, 9100.15-00 Person To Contact:
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------------------------------ Refer Reply To:
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---- Date:
June 23, 2025

LEGEND

Company = -------------------------------
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A = -------------------------------
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Date 1 = --------------------

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

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

Date 4 = --------------------------

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

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

This letter responds to a letter dated January 31, 2025, and subsequent correspondence, submitted on behalf of Company by its 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”).

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FACTS

The information submitted states that Company was organized as a limited liability company under the laws of State on Date 1. Company is classified as a partnership for Federal tax purposes. On Date 2 (within Company’s taxable year ended Date 3), A died holding a partnership interest in Company. However, Company inadvertently failed to file a valid § 754 election to adjust the basis of partnership property with its partnership return for the taxable year ended Date 3.

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 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)(1) of the Income Tax Regulations provides, in part, 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 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 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) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

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

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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, Company is granted an extension of time of 120 days from the date of this letter to make an election under § 754 effective for its taxable year ended Date 3 and thereafter. The election should be made in a written statement filed with the appropriate service center either (1) to be associated with Company's partnership tax return for its taxable year ended Date 3, or (2) 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, for Company’s taxable year ended Date 4 to be associated with Company’s return for its taxable year ended Date 3. A copy of this letter should be attached to the relevant filing.

This ruling is contingent on Company’s relevant filing(s) containing adjustments to the basis of Company’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 Company’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 Company is required to file an AAR in order to properly amend a partnership tax return, then this ruling is also contingent on Company filing Form 1065-X or Form 8082 and taking into account the adjustments as required by § 6227(b).

Additionally, the partners of Company must adjust the basis of their interests in Company 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 Company must reduce the basis of their interests in Company in the amount of any additional deductions for the recovery of basis related to Company’s property that would have been allowable if the § 754 election had been timely made.

Except as expressly provided herein, we express or imply no opinion concerning the 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

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an election is not a determination that the taxpayer is otherwise eligible to make the election.

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.

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.

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, and Estates)

/s/

Caroline E. Hay
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthrough, Trusts, and Estates)

Enclosure (1)
Copy for § 6110 purposes

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