Grants extra time for a partnership's section 754 election

Plain-English summary

A partnership underwent a technical termination after an owner acquired an additional interest. The partnership intended to elect under section 754 to adjust the basis of partnership property for the year of that termination but inadvertently failed to file the election on time. It represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS found that the partnership met the discretionary-relief requirements in Treasury Regulation sections 301.9100-1 and 301.9100-3. It granted 120 days to file a written section 754 election effective for the specified tax year and later years.

Ruling snapshot

• Question: Could the partnership receive extra time to make a section 754 basis-adjustment election after a technical termination?
• Outcome: Approved.
• Key authorities: IRC §§ 708(b)(1)(B), 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201812004
Release Date: 3/23/2018
Third Party Communication: None
Date of Communication: Not Applicable
Index Numbers: 754.02-00, 9100.15-00

Person To Contact:
[redacted], ID No. [redacted]
Telephone Number:
[redacted]
Refer Reply To:
CC:PSI:B03
PLR-126484-17
Date:
December 18, 2017

LEGEND

X = [redacted]
A = [redacted]
State = [redacted]
Date 1 = [redacted]
Date 2 = [redacted]
Date 3 = [redacted]
m = [redacted]

Dear [redacted]:

This letter responds to a letter dated August 25, 2017, submitted on behalf of X
by X’s authorized representative, 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 is a limited liability limited partnership
formed under State law on Date 1 and is classified as a partnership for federal tax

PLR-126484-17 2

purposes. On Date 2, A acquired an additional m percent of X, resulting in a technical
termination of X under § 708(b)(1)(B). X intended to, but inadvertently failed to, timely
file a § 754 election to adjust the basis of partnership property for the taxable year
ending Date 3.

X represents that it has acted reasonably and in good faith, and that granting
relief will not prejudice the interests of the government.

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) 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 301.9100-2 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.

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.

PLR-126484-17 3

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 effective for the taxable year ending Date 3 and thereafter. The
election should be made in a written statement filed with the appropriate service center
for association with X’s return for the taxable year ending Date 3. A copy of this letter
should be attached to the § 754 election.

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.

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.

In accordance with the power of attorney on file with this office, we are sending
copies of this letter ruling to your 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 and Special Industries)

By:
Caroline E. Hay
Assistant to the Branch Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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