Partnership received conditional relief for a late § 754 election

Plain-English summary

A limited partnership failed to make a timely § 754 election for the year in which one of its partners died. The partnership represented that it acted reasonably and in good faith and that late relief would not prejudice the government. The IRS granted 120 days to make the election for that year and later years. Relief was conditioned on the partnership and its partners reconstructing the property-basis, depreciation, and outside-basis consequences as though the election had been timely, even for affected years whose assessment or refund limitation periods had expired.

Ruling snapshot

• Question: Could the partnership make a late § 754 election for the year of a partner's death?
• Outcome: approved, with a 120-day extension and retroactive basis-adjustment conditions
• Key authorities: IRC §§ 734(b), 743, and 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201645001                                              Third Party Communication: None
Release Date: 11/4/2016                                        Date of Communication: Not Applicable
Index Number: 9100.15-00, 754.02-00
                                                               Person To Contact:
------------------------------------------------------------   ----------------------, ID No. ------------------

-                                                              Telephone Number:
----------------------------------------                       ----------------------
----------------------                                         Refer Reply To:
------------------------------                                 CC:PSI:B03
                                                               PLR-103245-16
                                                               Date: July 26, 2016




LEGEND

X        =        --------------------------------------------------------------
-
A        =        ----------------------------

State =           ---------

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

Year =            -------

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

      This responds to a letter dated January 15, 2016, and subsequent
correspondence, submitted on behalf of X, 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”).

       The information submitted states that X was formed as a limited partnership
under the laws of State. A, a partner of X, died on Date. X inadvertently failed to make
a timely election under § 754 for the year of A’s death (Year).

        X represents that it has acted reasonably and in good faith, and that granting
relief will not prejudice the interests of the government.

        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

PLR-103245-16                                 2

an election shall apply with respect to all distributions of property by the partnership and
to all transfers of interest 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, must 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) for filing the return for such taxable year.

        Under § 301.9100-1(c), 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 that 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 rules for requesting extensions 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 to establish that the taxpayer acted reasonably and in good faith, and
that granting relief will not prejudice the interests of the government.

       Based solely upon 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 a § 754 election 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 return for its Year taxable year. A copy of this letter should be attached to the
election.

       This ruling is contingent on X adjusting the basis of its properties to reflect any
§ 734(b) or § 743 adjustments that would have been made if the § 754 election had
been timely made. These basis adjustments must reflect any additional depreciation
that would have been allowable if the § 754 election had been timely made, regardless
of whether the statutory period of limitation on assessment or filing a claim for refund
has expired for any year subject to this grant of late relief. Any depreciation deduction
allowable for an open year is to be computed based upon the remaining useful life and

PLR-103245-16                                    3

using property basis as adjusted by the greater of any depreciation deduction allowed or
allowable in any prior year had the § 754 election been timely made. Additionally, the
partners of X must adjust the basis of their interests in X to reflect what that basis would
be if the § 754 election had been timely made, regardless of whether the statutory
period of limitation on assessment or filing a claim for refund has expired for any year
subject to this grant of late relief. Specifically, the partners of X must reduce the basis of
their interests in X in the amount of any additional depreciation that would have been
allowable if the § 754 election had been timely made.

       Except as specifically ruled upon above, no opinion is expressed or implied
concerning the tax consequences of any facts discussed or referenced in this letter.
Specifically, we express no opinion as to whether or not X is a partnership for federal
tax purposes.

      This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
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 ruling will be sent to your authorized representative.

       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 & Special Industries)

                                    By: Holly A. Porter
                                    Chief, Branch 3
                                    Office of Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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