Partnership received 120 days to make section 754 election

Plain-English summary

A limited liability company taxed as a partnership redeemed ownership interests but inadvertently failed to make a timely IRC § 754 election. That election permits partnership-property basis adjustments under §§ 734 and 743 for distributions and transfers of partnership interests. The partnership represented that it acted reasonably and in good faith, that relief would not prejudice the government, and that it was not using hindsight. The IRS concluded that the regulatory-relief standards were satisfied. It granted 120 days to file the written election, effective for the relevant tax year and later years.

Ruling snapshot

• Question: Could the partnership make a late § 754 election after redeeming partnership interests?
• Outcome: Approved, 120-day extension
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201622010                                              Third Party Communication: None
Release Date: 5/27/2016                                        Date of Communication: Not Applicable
Index Number: 9100.15-00
                                                               Person To Contact:
------------------------------------------------------------   ---------------------, ID No. ------------
---------                                                      Telephone Number:
--------------------------------------                         --------------------
----------------------------------------------                 Refer Reply To:
-----------------------------                                  CC:PSI:B01
                                                               PLR-129214-15
                                                               Date:
                                                               February 18, 2016




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

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

Year     = ------

Dear --------------------

This responds to a letter dated August 24, 2015, 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 make an election under § 754 of the
Internal Revenue Code.

FACTS

The information submitted states that X was formed as a limited liability company under
the laws of State and is classified as a partnership for federal tax purposes. In Year,
interests in X were redeemed. X inadvertently failed to timely file a § 754 election for
Year. X represents that it acted reasonably and in good faith, that granting relief will not
prejudice the interest of the government, and that it is not using hindsight in making this
election.

LAW AND ANALYSIS

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
PLR-129214-15                                 2

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 § 1.6031-1(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 to make a regulatory election, or a statutory election (but no more than
six 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 including 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 an election. Section
301.9100-2 provides 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. Requests for relief under § 301.9100-3 will be granted
when the taxpayer provides 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) granting relief will not prejudice the interests of the
government.

CONCLUSION

Based on 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 120 days from the date of this letter to make an election
under § 754, effective for its Year taxable year and thereafter. The election should be
made in a written statement filed with the appropriate service center for association with
X’s Year tax return. A copy of this letter should be attached to the election.

We express no opinion concerning the assessment of any interest, additions to tax,
additional amounts, or penalties for failure to file a timely income tax or information
return with respect to any taxable year that may be affected by this ruling. For example,
we express no opinion as to whether a taxpayer is entitled to relief from any penalty on
PLR-129214-15                                 3

the basis that the taxpayer had reasonable cause for failure to file timely any income tax
or information returns.

In addition, 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 Internal Revenue 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. In accordance with the 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 & Special Industries)



                                  By: Laura C. Fields
                                      Laura C. Fields
                                      Senior Technician Reviewer, Branch 1
                                      (Passthroughs & Special Industries)


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



cc: