120-day extension to make a late section 754 basis-adjustment election

Plain-English summary

A state limited liability company taxed as a partnership meant to make a section 754 election for a particular tax year but inadvertently failed to make it properly. A section 754 election lets a partnership adjust the basis of its assets when interests are transferred or property is distributed, which can create future deductions for the affected partners. The election normally has to be filed with the partnership return for the year of the event. The company asked the IRS for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3, which grant extra time for a missed election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS granted 120 days from the date of the letter to make the election, conditioned on the partnership and its partners retroactively adjusting their bases as if the election had been timely. Granting the extension does not itself decide that the partnership was eligible to make the election.

Ruling snapshot

• Question: Should the partnership get an extension of time to make a missed section 754 election?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 754 (with §§ 734(b), 743(b)); Treas. Reg. §§ 301.9100-1, 301.9100-3, 1.754-1(b)(1)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202552004 Third Party Communication: None
Release Date: 12/26/2025 Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00 Person To Contact:
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Date:
September 24, 2025

LEGEND

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

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

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

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

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

  This letter responds to a letter dated March 31, 2025, and subsequent

correspondence, submitted on behalf of X, by its authorized representative, requesting
an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations for X to file an election under § 754 of the Internal Revenue
Code ("Code").

                                                FACTS

  The information submitted states that X, a State limited liability company formed

on Date 1, is classified as a partnership for federal tax purposes. X intended to make
§ 754 election for its taxable year ended Date 2. However, X inadvertently failed to
properly make a § 754 election for its taxable year ended Date 2.
PLR-107599-25 2

                                        LAW

    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 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)(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, 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 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 the 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 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 one hundred-twenty (120) days from
the date of this letter to make a § 754 election for its taxable year ended Date 2. The
election should be made in a written statement filed with the appropriate service center
PLR-107599-25 3

for association with X's return for its taxable year ended Date 2. A copy of this letter
should be attached to the statement filed.

    This ruling is contingent on X adjusting the basis of its 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.

    Additionally, affected partner(s) 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
affected partner(s) 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 tax consequences of any facts discussed or referenced in this letter. 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.

  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 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 requested ruling, it is subject to verification on examination.

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

copy of this letter ruling to your authorized representatives.
PLR-107599-25 4

                                                        Sincerely,

                                                        Associate Chief Counsel
                                                        (Passthroughs, Trusts, and Estates)



                                                     By: _____________________________
                                                        Richard T. Probst
                                                        Senior Technician Reviewer, Branch 3
                                                        Office of Associate Chief Counsel
                                                        (Passthroughs, Trusts, and Estates)

Enclosure:
Copy of this letter for § 6110 purposes

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