Partnership receives 120 days to make a late section 754 election

Plain-English summary

A limited liability company taxed as a partnership timely filed its federal return but inadvertently omitted its section 754 election. That election allows basis adjustments under sections 734(b) and 743(b) for partnership-property distributions and transfers of partnership interests. The partnership represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days from the ruling date to file a written election effective for the specified tax year and later years. The partnership had to send the election to the appropriate service center for association with its return and attach a copy of the ruling.

Ruling snapshot

• Question: Could the partnership make a late section 754 election after timely filing its return without the required statement?
• Outcome: approved
• Key authorities: IRC §§ 734, 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: 201726010                                              Third Party Communication: None
Release Date: 6/30/2017                                        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:03
------------------------------------                           PLR-137134-16
                                                               Date:
                                                               April 04, 2017




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

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

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

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

       This letter responds to a letter dated November 21, 2016, 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. X’s tax return for the taxable year
ended Date was timely filed, but a § 754 election to adjust the basis of partnership
property was inadvertently not filed with the return. 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 754 provides, in part, 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,
PLR-137134-16                             2

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 §§ 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(a)-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
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 Date 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 Date. 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
PLR-137134-16                            3

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:    ______________________________
                                                 Richard T. Probst
                                                 Senior Technician Reviewer, Branch 3
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)


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