120-day extension to file a late Section 754 election to adjust partnership property basis

Plain-English summary

A Section 754 election lets a partnership adjust the tax basis of its property when a partner's interest changes hands or property is distributed, so the new numbers line up with what partners actually paid. The election must be filed with the partnership return for the year the triggering event happens. Here an LLC treated as a partnership had a new member acquire interests, but it inadvertently missed making the § 754 election for that year. It asked the IRS for relief under the § 301.9100-3 rules, which allow a late regulatory election when the taxpayer acted reasonably and in good faith and granting relief will not harm the government. The IRS granted a 120-day extension to make the election, subject to conditions: the partnership and its partners must make the basis adjustments (under §§ 734(b) and 743(b)) as if the election had been timely, even for years now closed by the statute of limitations. Granting extra time is not a ruling that the taxpayer was otherwise eligible to make the election.

Ruling snapshot

• Question: Should the partnership get more time to file a late Section 754 election it inadvertently missed?
• Outcome: Approved (120-day extension, contingent on making the required basis adjustments).
• Key authorities: IRC § 754 (with §§ 734 and 743); 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: 202607004 Third Party Communication: None
Release Date: 2/13/2026 Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.00-00,
9100.15-00 Person To Contact:
[Redacted], ID No. [Redacted]
[Redacted] [Redacted]
[Redacted] Telephone Number:
[Redacted] [Redacted]
[Redacted] Refer Reply To:
[Redacted] CC:PT&E:01
PLR-109626-25
Date:
November 06, 2025

LEGEND

X = [Redacted]
A = [Redacted]
Date 1 = [Redacted]

Date 2 = [Redacted]

Date 3 = [Redacted]

State = [Redacted]

Dear [Redacted]:

This letter responds to a letter dated April 14, 2025, 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 for X to file an election under § 754 of the
Internal Revenue Code.

                                                 FACTS

X was formed in Date 1 as a limited liability company under the laws of State and is
treated as a partnership for federal tax purposes. On Date 2, A acquired interests in X.
X inadvertently failed to make a § 754 election for its taxable year ended Date 3.

                              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
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) 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 that taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 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 Internal Revenue 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 that the Commissioner
will use to determine whether to grant an extension of time to make an election. Section
301.9100-2 provides automatic extensions of time for making certain elections. Section
301.9100-3 provides rules for requesting extensions 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 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 120 days from the date of this letter to
make an election under § 754 effective for X's taxable year ended Date 3. The election
should be made in a written statement filed with the appropriate service center either (1)
to be associated with X's return for its taxable year ended Date 3, or (2) accompanying
For 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 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 his grant of late relief. Any deductions for 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 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 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).

Additionally, the 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 his grant of late relief. Specifically, the partners of X must reduce
the basis of their interest 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 ruling request, it is subject to verification on examination.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 your authorized representatives.

                                            Sincerely,

                                            Jeffrey A. Van Hove
                                            Acting Associate Chief Counsel
                                            (Passthroughs, Trusts, and Estates)



                                            By: ________________________________
                                            Laura C. Fields
                                            Branch Chief, Branch 1
                                            Office of Associate Chief Counsel
                                            (Passthroughs, Trusts, and Estates)

Enclosure: Copy for § 6110 purposes

cc: [Redacted]