Partnership receives 120 days to make late § 754 election

Plain-English summary

A limited liability company taxed as a partnership had an ownership interest transferred during a tax year. Its tax adviser did not tell it that a § 754 election was available, so the partnership failed to file the election with its return for that year. The election would allow partnership-property basis adjustments under §§ 734 and 743 for distributions and interest transfers. The IRS found that the partnership met the regulatory-relief requirements and gave it 120 days to file the election for the transfer year and later years. The written election and a copy of the ruling were to be filed for association with the partnership's return.

Ruling snapshot

• Question: Should the partnership receive more time to make a § 754 election after its adviser failed to identify the election?
• Outcome: Approved, with 120 days to make the election
• 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: 201626007                                           Third Party Communication: None
Release Date: 6/24/2016                                     Date of Communication: Not Applicable
Index Number: 9100.15-00
                                                            Person To Contact:
----------------------------                                ---------------------, ID No. ------------
--------------------------------------------                Telephone Number:
------------------                                          --------------------
 ------------------------------                             Refer Reply To:
                                                            CC:PSI:B01
                                                            PLR-133232-15
                                                            Date:
                                                            March 22, 2016


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

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

Year 1         = ------

Year 2         = ------

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

This responds to a letter dated September 22, 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 to file an election under § 754 of the Internal
Revenue Code (Code).

FACTS

The information submitted states that X was formed as a limited liability company under
the laws of State in Year 1 and is classified as a partnership for federal tax purposes. In
Year 2, an interest in X was transferred. At that time, however, X’s tax advisor did not
advise X of the availability of an election under § 754. Accordingly, X inadvertently
failed to timely file a § 754 election for Year 2.

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-133232-15                                 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 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 automatic extensions of time for making certain elections. Section
301.9100-3 provides extensions of time for making 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 the taxpayer
acted reasonably and in good faith, and grant of relief will not prejudice the interests of
the government.

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 its Year 2 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 2 tax return. A copy of this letter should be attached to the
§ 754 election.

Except as specifically set forth above, no opinion is expressed concerning the federal
tax consequences of the facts described above under any other provision of the Internal
Revenue Code and the regulations thereunder.

PLR-133232-15                                3


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, a copy of this letter is being sent to X’s authorized
representative.


                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                                 By: Joy C. Spies
                                     Joy C. Spies
                                     Senior Counsel, Branch 1
                                     (Passthroughs & Special Industries)


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


cc: