Nine partnerships received 120 days to make late section 754 elections

Plain-English summary

Nine entities treated as partnerships were owned through two trusts by two individuals. When one individual died, each partnership failed to make a section 754 election for that taxable year. Such an election allows partnership-property basis adjustments after a transfer of a partnership interest, including a transfer caused by a partner's death. The IRS concluded that the partnerships satisfied the regulatory standards for late-election relief. Each partnership received 120 days to file a written section 754 election effective for the year of death and later years.

Ruling snapshot

• Question: Could the nine partnerships receive extra time to make section 754 elections for the year in which an owner died?
• Outcome: approved
• Key authorities: IRC §§ 743(b), 754, 755; Treas. Reg. §§ 1.754-1(b), 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 201736007                                                Third Party Communication: None
Release Date: 9/8/2017                                           Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00,
              9100.15-00                                         Person To Contact:
                                                                 ---------------------, ID No. ------------------
------------------------------                                   Telephone Number:
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-----------------------------------------                        Refer Reply To:
------------------------------------------                       CC:PSI:B01
---------------------------------                                PLR-109101-17
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                                                                 PLR-112208-17

                                                                 Date:
                                                                 May 30, 2017




LEGEND

A                 =         -------------------------------
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B                 =         --------------------------------
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C                 =         ------------------------------------------
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D                 =         -------------------------------------------
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E                 =         ----------------------------------
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F                 =         ------------------------------------------
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G                 =        -------------------------------------
PLR-109101-17                                             2

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H                 =         ---------------------------------
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I                 =         ------------------------------------
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X                 =         --------------------------------
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Y                 =         --------------------------------------
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Trust 1           =         -------------------------------------------------------------------------
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Trust 2           =         ---------------------------------------------------------------------------
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State 1           =        -----------

State 2           =        -----------

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

Year              =        -------


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

This letter responds to a letter dated February 28, 2017, and subsequent
correspondence, submitted on behalf of A, B, C, D, E, F, G, H, and I requesting an
extension of time under § 301.9100-3 of the Procedure and Administration Regulations
for A, B, C, D, E, F, G, H, and I to make elections under § 754 of the Internal Revenue
Code (“Code”).

FACTS

The information submitted states that A, B, C, D, F, H, and I are State 1 limited liability
companies, E is a State 1 limited partnership, G is a State 2 limited liability company,
and all these entities are treated as partnerships for federal income tax purposes. X
and Y owned interests in A, B, C, D, E, F, G, H, and I through Trust 1, a revocable
grantor trust, and Trust 2, an irrevocable trust. On Date, Y died. A, B, C, D, E, F, G, H,
PLR-109101-17                                  3

and I each inadvertently failed to make an election under § 754 for the year of Y's death
(Year).

LAW AND ANALYSIS

Section 743(b) provides, in pertinent part, that, in the case of a transfer of an interest in
a partnership by sale or exchange or upon the death of a partner, a partnership, with
respect to which an election provided in § 754 is in effect, will increase the adjusted
basis of the partnership property by the excess of the basis to the transferee partner of
his interest in the partnership over his proportionate share of the adjusted basis of the
partnership property, or decrease the adjusted basis of the partnership property by the
excess of the transferee partner's proportionate share of the adjusted basis of the
partnership property over the basis of his interest in the partnership. Section 743(b)
further provides that such increase or decrease shall constitute an adjustment to the
basis of partnership property with respect to the transferee partner only.

Section 743(c) provides that the allocation of basis among partnership properties where
§ 743(b) is applicable shall be made in accordance with the rules provided in § 755.

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
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 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, 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 such 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) 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 the election. Section
PLR-109101-17                                4

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 granting 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, A, B, C, D, E, F, G, H, and I are each granted an extension of time of 120 days
from the date of this letter to make an election under § 754, effective for A’s, B’s, C’s,
D’s, E’s, F’s, G’s, H’s, and I’s Year taxable year and thereafter. The elections should be
made in written statements filed with the appropriate service center for association with
the tax returns of A, B, C, D, E, F, G, H, and I for Year. A copy of this letter should be
attached to each 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 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.
PLR-109101-17                                5

In accordance with the power of attorney on file with this office, we are sending a copy
of this letter to the authorized representatives of A, B, C, D, E, F, G, H, and I.


                                      Sincerely,

                                      John P. Moriarty
                                      Acting Associate Chief Counsel
                                      (Passthroughs & Special Industries)

                                      David R. Haglund

                               By:    _________________________________
                                      David R. Haglund
                                      Chief, Branch 1
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)

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