Partnership receives more time to make a section 754 election

Plain-English summary

A limited liability company taxed as a partnership missed the deadline to elect under IRC § 754 after one of its members died. The election would permit an adjustment to the basis of partnership property for the transferred partnership interest under § 743(b). The partnership represented that it acted reasonably and in good faith and that relief would not harm the government's interests. The IRS granted 120 days to file the election for the relevant tax year and later years.

Ruling snapshot

• Question: Should the partnership receive more time to make a § 754 basis-adjustment election after a member's death?
• Outcome: Approved, with 120 days from the ruling date to file the election
• Key authorities: IRC §§ 743(b) and 754; Treas. Reg. §§ 1.754-1(b)(1), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201629002                                              Third Party Communication: None
Release Date: 7/15/2016                                        Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
              9100.00-00, 9100.15-00                           Person To Contact:
                                                               --------------------, ID No. ------------------
--------------------------------------------                   Telephone Number:
--------------------------------------------------------       -------- ------ -------
--------------------------                                     Refer Reply To:
----------------------------------                             CC:PSI:03
                                                               PLR-133224-15
                                                               Date:
                                                               March 15, 2016




X                 =        --------------------------------------------
------------------------------------------
State             =        --------------
D1                =        -------------------
D2                =        ----------------------------
A                 =        --------------------

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

      This letter responds to a letter dated September 30, 2015, and subsequent
correspondence, submitted on behalf of X, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to make an election
under § 754 of the Internal Revenue Code (Code).

FACTS

        The information submitted states that X is a State limited liability company that is
classified as a partnership for federal tax purposes. A, a member of X, died on D1. X
inadvertently failed to make a timely election under § 754 for its taxable year ended D2.
X represents that it has acted reasonably, and in good faith, and that granting relief will
not prejudice the interests of the Government.

LAW

       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
PLR-133224-15                             2

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 754 provides, in part, that if a partnership files an election, in accordance
with the regulations prescribed by the Secretary, the basis of the partnership property is
adjusted, 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)(1) of the Income Tax Regulations provides, in part, that an
election under § 754 to adjust the basis of partnership property under § 743(b) with
respect to 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 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 the 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) 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 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 grant of relief will not prejudice the interests of the Government.

CONCLUSION

       Based solely on the information submitted and the representations made, we
PLR-133224-15                             3

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 taxable year ended D2 and thereafter.
The election should be made in a written statement filed with the appropriate service
center for association with X’s return for its taxable year ended D2. A copy of this letter
should be attached to the 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.

      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter to X's authorized representatives.


                                                 Sincerely,



                                                 Associate Chief Counsel
                                                 (Passthroughs and Special Industries)




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


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