Late § 754 election allowed for a partnership after two partners died

Plain-English summary

A partnership missed the deadline to make a § 754 election and asked the IRS for more time. A § 754 election lets a partnership adjust the tax basis of its assets when a partner's interest changes hands, so the inside basis of partnership property lines up with what the new owner paid (or inherited). Here, two partners died, which normally triggers a basis step-up under § 743, but the partnership forgot to file the election with its return for that year. The IRS granted a 120-day extension under Treas. Reg. § 301.9100-3, the general relief rule that applies when a taxpayer acted reasonably and in good faith and letting the late election in would not hurt the government. The relief comes with strings: the partnership and the partners must actually book the basis adjustments (and any resulting depreciation or basis recovery) as if the election had been timely, even for years the statute of limitations would otherwise have closed.

Ruling snapshot

• Question: May a partnership that inadvertently missed its § 754 election get an extension of time to file it?
• Outcome: approved (120-day extension granted)
• Key authorities: IRC § 754; Treas. Reg. § 1.754-1(b); Treas. Reg. §§ 301.9100-1 through 301.9100-3; IRC §§ 734(b), 743(b)

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202610009                                            Third Party Communication: None
 Release Date: 3/6/2026                                       Date of Communication: Not Applicable
 Index Numbers: 754.00-00, 9100.00-00,
               9100.15-00                                     Person To Contact:
                                                              ----------------------, ID No. -----------------
 ------------------------------------------                   Telephone Number:
 --------------------------------------------------------     --------------------
 --------------------------------                             Refer Reply To:
 ---------------------------                                  CC:PTE:B3
                                                              PLR-112071-25
 -----------------------------------                          Date:
                                                              December 09, 2025




Legend


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


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


 B             = ----------------------


 State         = -------


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


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


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



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

      This letter responds to a letter dated June 5, 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 file an election under § 754 of the Internal Revenue Code (“Code”).
PLR-112071-25                                2

                                         FACTS

      X was formed under the laws of State on Date 1, and was treated as a
partnership for federal tax purposes. On Date 2, A and B, partners in X, died. X
inadvertently failed to make a § 754 election for its tax year ended Date 3.

                                           LAW

       Section 754 provides 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) 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 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 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.
PLR-112071-25                                  3

                                       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 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
accompanying X’s Form 1065, U.S. Return of Partnership Income, for tax year ended
Date 3, and for any related filings as instructed in Form 1065, 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 this 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.

        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 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. 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 on 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) of
the Code provides that it may not be used or cited as precedent.
PLR-112071-25                                              4

      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,

                                                               Associate Chief Counsel
                                                               (Passthroughs, Trusts, and Estates)



                                                     By:       _____________________________
                                                               Elizabeth V. Zanet
                                                               Senior Technician Reviewer, Branch 3
                                                               Office of the Associate Chief Counsel
                                                               (Passthroughs, Trusts, and Estates)



 Enclosure
    Copy for § 6110 purposes

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