Partnership receives 120 days to make a late section 754 election

Plain-English summary

A partner in a limited partnership died, but the partnership filed its return for that year without an IRC § 754 election. Such an election allows basis adjustments under §§ 734(b) and 743(b) following distributions or transfers of partnership interests. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to file the election statement for association with the original partnership return. The ruling did not decide whether the partnership otherwise qualified to make the election.

Ruling snapshot

• Question: Could the partnership make a late IRC § 754 election for the year a partner died?
• Outcome: approved
• 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: 201728015
Release Date: 7/14/2017
Index Numbers: 754.00-00, 9100.15-00

---------------------------- Person To Contact:
------------------------------------------ -----------------------, ID No. -------------------
-------------------------------------- ---------------------------------------------------
----------------------------------------------- Telephone Number:
----------------------
Refer Reply To:
CC:PSI:B03 – PLR-135962-16
Date: April 12, 2017

                                                 LEGEND

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

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

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

D1 = --------------------

D2 = ---------------------------

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

  This letter responds to a letter dated November 8, 2016, and subsequent

correspondence submitted on behalf of X requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to file an election
under § 754 of the Internal Revenue Code (Code).

                                                 FACTS

    According to the information submitted, X was formed as a limited partnership

under State law and is classified as a partnership for federal tax purposes. A, a partner
in X, died on D1. X’s tax return for the taxable year ended D2 was filed without a § 754
election.
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                              LAW AND ANALYSIS

   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(a)-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) provides that the term “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 an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for regulatory elections that
do not meet the requirements of § 301.9100-2.

   Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 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 the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                                  CONCLUSION

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

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

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

letter to X’s 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 & Special Industries)



                                      By: _/s/____________________________
                                         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