Partnership receives 120 days to make late section 754 election

Plain-English summary

A general partnership failed to make a section 754 election for the year in which one of its partners died. It represented that the omission was inadvertent, that it acted reasonably and in good faith, and that relief would not prejudice the government. The IRS concluded that the section 301.9100-3 requirements were satisfied and granted 120 days to file the election statement. The relief was conditioned on reconstructing all section 734(b) and 743(b) basis adjustments that would have applied if the election had been timely. The partnership and its partners also had to account for depreciation that would have been allowable in prior years, even when limitation periods had expired.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year of a partner's death?
• Outcome: approved, with 120 days to file and required retroactive basis adjustments
• Key authorities: IRC §§ 734(b), 743(b), 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: 201704015 Third Party Communication: None
Release Date: 1/27/2017 Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.15-00
Person To Contact:
---------------------------------------- -----------------------, ID No. -------------------
------------------------------------- ---------------------------------------------------
------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:1
PLR-113539-16
Date:
October 18, 2016

Legend

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

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

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

Year1 = -------

Year2 = -------

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

This is in response to a letter dated March 29, 2016, 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.

FACTS

According to the information submitted, X was formed as a general partnership in
Year1. X is treated as a partnership for federal tax purposes. A, a partner of X, died on
Date. X inadvertently failed to timely make an election under § 754 for the year of A's
death. X represents that it has acted reasonably and in good faith, that granting relief
will not prejudice the interests of the government, and that it is not using hindsight in
making the election.

                                         LAW AND ANALYSIS

PLR-113539-16 2

Section 754 provides that a partnership may elect to adjust the basis of partnership
property when there is a distribution of property or a 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 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, 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 Internal Revenue
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
301.9100-1(a). 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. Section 301-9100-3(a).

                                  CONCLUSION

Based solely 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 one hundred-twenty (120) days from the date of this
letter to make a § 754 election for Year2. The election should be made in a written
statement filed with the applicable service center for association with X's tax return. A
copy of this letter should be attached to the statement filed.

This ruling is contingent on X adjusting the basis of its properties to reflect any § 734(b)
or 743(b) 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
PLR-113539-16 3

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 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 expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

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 your authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                                   Laura C. Fields
                                   Laura C. Fields
                                   Senior Technician Reviewer, Branch 1
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

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