IRS grants an LLC a late Section 754 election to adjust the basis of partnership property

Plain-English summary

An LLC taxed as a partnership meant to make a Section 754 election but its tax
advisors inadvertently failed to file it on time. A Section 754 election lets a
partnership adjust the inside tax basis of its assets when interests change hands
or property is distributed, using the mechanics of Sections 734(b) and 743(b), so
the basis of the assets tracks what the partners effectively paid. The election
is normally due with the partnership return for the year of the distribution or
transfer. The LLC asked the IRS for more time under the Section 301.9100-3
regulations, which allow relief for a missed regulatory election when the taxpayer
acted reasonably and in good faith and granting relief will not prejudice the
government. The IRS granted a 120-day extension. As with other late Section 754
relief, the election comes with conditions: the partnership and its partners must
make the basis adjustments that would have applied had the election been timely,
even for years otherwise closed by the statute of limitations, and must use the
partnership audit AAR process (Form 8082) where required.

Ruling snapshot

• Question: Should a partnership get more time to make a late Section 754 election to adjust the basis of its property?
• Outcome: Approved. 120-day extension granted.
• Key authorities: IRC § 754; Treas. Reg. § 1.754-1(b); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202551008
Release Date: 12/19/2025
Index Number: 754.00-00, 754.02-00, 9100.15-00

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
-----------------------, ID No. -----------------
Telephone Number:

Refer Reply To:
CC:PT&E:B03
PLR-109618-25
Date:
September 25, 2025

LEGEND

X = ---------------------------------------
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State = -------------

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

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

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

  This letter responds to a letter dated March 27, 2025, 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 make an election under § 754 of the Internal Revenue Code.

                                                 FACTS

  The information submitted states that X is a State limited liability company

formed on Date 1 which is classified as a partnership for federal tax purposes. X
intended to file a § 754 election to adjust the basis of X’s property for the taxable year
ending Date 2 and relied on its tax advisors to timely file the election. However, due to
inadvertence, X failed to timely file a valid § 754 election with its return for the taxable
year ending Date 2.

    X represents that it has acted reasonably and in good faith, and that granting

relief will not prejudice the interests of the government.

                               LAW AND ANALYSIS

   Section 754 provides, in part, that a partnership may elect to adjust the basis of

partnership property when there is a distribution of property or a transfer of a
partnership interest. An election under § 754 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, 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) 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) defines the term
“regulatory election” as 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 the
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.

   Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be

granted when the taxpayer provides the 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 that 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 one hundred-twenty (120) days from
the date of this letter to make an election under § 754 effective for its taxable year
ending on Date 2 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 tax return for
the taxable year ending Date 2, or (2) 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.

     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 the partnership is required to file an AAR in order to properly amend a
partnership tax return, then this ruling is also 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 depreciation
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 other material
submitted in support of the ruling request, 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.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to X’s authorized representative.

                                           Sincerely,

                                           Associate Chief Counsel
                                           (Passthroughs, Trusts, and Estates)




                                       By:
                                             Robert D. Alinsky
                                             Branch Chief, Branch 3
                                             Office of Associate Chief Counsel
                                             (Passthroughs, Trusts, and Estates)

Enclosure:
Copy of this letter for § 6110 purposes

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