Three partnerships may make late section 754 elections

Plain-English summary

Three limited liability companies treated as partnerships failed to make section 754 elections for the year in which an owner died. A section 754 election allows partnership property basis adjustments following certain transfers of partnership interests, including transfers at death. The IRS concluded that each partnership satisfied the standards for discretionary filing relief. It gave each partnership 120 days to file a written election effective for the year of death and later years.

Ruling snapshot

• Question: Could the three partnerships make late section 754 elections for the year of an owner's death?
• Outcome: Approved, with 120 days for each partnership to file its election.
• Key authorities: IRC §§ 743, 754, and 755; Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                Department of the Treasury
                                                        Washington, DC 20224

Number: 201610002                                       Third Party Communication: None
Release Date: 3/4/2016                                  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:PSI:B03
                                                        PLR-115058-15
                                                        PLR-115059-15
                                                        PLR-115060-15
                                                        Date:
                                                        October 05, 2015

Legend

X        =        ----------------
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Y        =         -----------------------------
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Z        =         ----------------------------------
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A        =         ----------------------------------
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Trust =            ----------------------------------
----------------------------------------

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

Date =            -----------------------

Year =            ------


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

      This letter responds to a letter dated January 30, 2015, and subsequent
correspondence, submitted on behalf of X, Y and Z requesting an extension of time
under § 301.9100-3 of the Procedure and Administration Regulations for X, Y and Z to
make elections under § 754 of the Internal Revenue Code (“Code”).
PLR-115058-15; PLR-115059-15;                 2
PLR-115060-15

       The information submitted states that X, Y and Z are State limited liability
companies and are treated as partnerships for federal income tax purposes. A owned
interests in X, Y, and Z through Trust, a revocable grantor trust. On Date, A died. X, Y,
and Z each inadvertently failed to make an election under § 754 for the year of A’s
death (Year).

       Section 743(b) provides, in pertinent part, that, in the case of a transfer of an
interest in a partnership by sale or exchange or upon the death of a partner, a
partnership, with respect to which an election provided in § 754 is in effect, will increase
the adjusted basis of the partnership property by the excess of the basis to the
transferee partner of his interest in the partnership over his proportionate share of the
adjusted basis of the partnership property, or decrease the adjusted basis of the
partnership property by the excess of the transferee partner’s proportionate share of the
adjusted basis of the partnership property over the basis of his interest in the
partnership. Section 743(b) further provides that such increase or decrease shall
constitute an adjustment to the basis of partnership property with respect to the
transferee partner only.

       Section 743(c) provides that the allocation of basis among partnership properties
where § 743(b) is applicable shall be made in accordance with the rules provided in
§ 755.

         Section 754 provides that if a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership property shall be
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 such 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 § 1.6031-1(e)
(including extensions thereof) 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) provides that the term
PLR-115058-15; PLR-115059-15;                 3
PLR-115060-15

“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 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. 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
granting of relief will not prejudice the interests of the Government.

        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, Y and Z are each granted an extension of time of 120 days from the date
of this letter to make an election under § 754, effective for X’s, Y’s, and Z’s Year taxable
year and thereafter. The elections should be made in written statements filed with the
appropriate service center for association with the tax returns of X, Y and Z for Year. A
copy of this letter should be attached to each election.

       Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other provision of
the Code and the regulations thereunder.

      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 ruling request, it is subject to verification on examination.
PLR-115058-15; PLR-115059-15;               4
PLR-115060-15


      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter to the authorized representative of X, Y and Z.

                                         Sincerely,

                                         Associate Chief Counsel
                                         (Passthroughs & Special Industries)



                                  By:    _____________________________
                                         Mary Beth Carchia
                                         Senior Technician Reviewer, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)



Enclosures (2)
      Copy of this letter
      Copy for § 6110 purposes


cc: