Partnership receives extension for section 754 election

Plain-English summary

A partnership intended to make an IRC § 754 election for the year a member died and the member's partnership interest passed to another person. The partnership relied on an advisor, who failed to file the election with the partnership return. The IRS concluded that the partnership met the standards for discretionary filing relief. It granted 120 days to file a written § 754 election for the intended tax year with the appropriate service center.

Ruling snapshot

• Question: May the partnership make a late IRC § 754 election for the year of the ownership transfer?
• Outcome: Approved, with 120 days to file the election
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201632009 Third Party Communication: None
Release Date: 8/5/2016 Date of Communication: Not Applicable
Index Numbers: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00 Person To Contact:
---------------------, ID No. ----------------
------------------------------------------------ Telephone Number:
------------------------------------------------ ------- ------------
---------------------------------------- Refer Reply To:
------------------------------- CC:PSI:B03
PLR-131841-15
Date:
February 29, 2016

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

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

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

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

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

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

Year = ----------

n = ------

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

   This letter responds to a letter received by our office on September 29, 2015, and

subsequent correspondence, submitted on behalf of X by its authorized representatives,
requesting a ruling that X be granted 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) for Year.

PLR-131841-15 2

                                      FACTS

   X is a limited liability partnership organized under the laws of State on Date 1.

On Date 2, A, a member of X, died. X intended to make an election under § 754 for
Year, the year in which A died. After A’s death, A’s n% interest in X was transferred to
B. X relied on its advisor to file an election under § 754, however; the advisor failed to
make an election under § 754 for Year.

                                       LAW

   Section 754 provides that a partnership may elect to adjust the basis of

partnership property when there is a distribution of property or transfer of a partnership
interest. An election under § 754 applies with respect to all distributions of property by
the partnership and to all transfers of property in the partnership during the taxable year
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 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) provides that a 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 a
regulatory election. Section 301.9100-2 provides the rules governing 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 subject to § 301.9100-3 will be granted when the taxpayer

provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to

PLR-131841-15 3

the satisfaction of the Commissioner that the taxpayer acted reasonably and in good
faith, and the grant of relief will not prejudice the interests of the Government.

                                  CONCLUSION

   Based on the facts submitted and representations made, we conclude that the

requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, 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. 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 statement filed.

   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.

  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.

    Pursuant to a power of attorney on file with this office, we are sending a copy of

this letter to your authorized representatives.

   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.

                                  Sincerely,
                                  Associate Chief Counsel
                                  (Passthroughs and Special Industries)


                               By:____________________________
                                  James A. Quinn
                                  Senior Counsel, Branch 3
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: