Partnership receives 120 days to file a late section 754 basis-adjustment election

Plain-English summary

A partnership timely filed its federal return but inadvertently omitted a section 754 election to adjust the basis of partnership property. Such an election applies section 734 adjustments to property distributions and section 743 adjustments to transfers of partnership interests for the election year and later years. The partnership represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS concluded that the discretionary-extension requirements were met and granted 120 days to file the written election statement with the appropriate service center. The IRS did not decide whether the entity was otherwise a partnership for federal tax purposes.

Ruling snapshot

• Question: May a partnership file a late section 754 election after timely filing its return without the required election statement?
• Outcome: approved, with the election due within 120 days
• 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: 201804006                                             Third Party Communication: None
Release Date: 1/26/2018                                       Date of Communication: Not Applicable
Index Number: 754.02-00, 9100.15-00
                                                              Person To Contact:
---------------------------------------------------           -----------------------, ID No. -------------------
---------------------------------                             ---------------------------------------------------
---------------------                                         Telephone Number:
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                                                              Refer Reply To:
                                                              CC:PSI:1
                                                              PLR-121142-17
                                                              Date:
                                                              October 18, 2017


Legend

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

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

Year =            -------

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

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

This letter responds to a letter dated June 30, 2017, 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”).

                                                        FACTS

The information submitted states that X was organized as a partnership under the laws
of State in Year. X 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-121142-17                                 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 statement filed.

PLR-121142-17                                 3

Except as specifically ruled upon above, we express or imply no opinion concerning the
tax consequences of any facts discussed or referenced in this letter. Specifically, we
express no opinion as to whether X is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer who requested 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 a power of attorney on file with this office, we are sending a copy of
this letter ruling 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 of this letter for § 6110 purposes