Grants 120 days to make late partnership basis election

Plain-English summary

A partnership wanted a section 754 election after a general partner died, but its tax return was filed without the election because it relied on its tax adviser. The partnership represented that it acted reasonably and in good faith, was not using hindsight, and would not prejudice the government's interests. The IRS found that the requirements for discretionary filing relief were satisfied. It gave the partnership 120 days to file the written section 754 election for the relevant year and later years.

Ruling snapshot

• Question: Could the partnership receive extra time to file a section 754 basis-adjustment election omitted from its timely return?
• Outcome: Approved; a 120-day extension was granted.
• Key authorities: IRC §§ 734(b), 743(b), 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: 201815002 Third Party Communication: None
Release Date: 4/13/2018 Date of Communication: Not Applicable
Index Numbers: 754.00-00, 9100.15-00
Person To Contact:
------------------------------------- ------------------, ID No. ------------------
------------------------------ Telephone Number:
-------------------------- ----------------------
----------------------------- Refer Reply To:
CC:PSI:B01
PLR-120348-17
Date:
November 30, 2017

LEGEND

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

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

Date 1 = -------------------------------

Date 2 = --------------------

Year 1 = -------

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

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

This is in response to a letter dated June 15, 2017, and supplemental correspondence,
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.

FACTS

According to the information submitted, X was formed as a general partnership under
the laws of State on Date 1 and is treated as a partnership for federal tax purposes.

On Date 2, A, a general partner of X, died. X represents that it relied upon its tax
advisor when preparing the tax return for Year 1. However, X’s income tax return for
Year 1 was inadvertently filed without a § 754 election.

X further represents that it has acted reasonably and in good faith, that granting relief
will not prejudice the interests of the government, and that it is not using hindsight in
making the election.

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 § 1.6031-1(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 Internal Revenue
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.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides
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 that granting relief will not prejudice the interests of the government.

CONCLUSION

Based solely on 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 one hundred twenty (120) days from the date of this
letter to make a § 754 election for Year 1 and thereafter. The election should be made
in a written statement filed with the applicable service center for association with X’s tax
return for its taxable year ending Year 1. A copy of this letter should be attached to the
statement filed.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   Office of Chief Counsel
                                   (Passthroughs & Special Industries)


                                  Faith Colson
                              By: _____________________________
                                  Faith Colson
                                  Senior Counsel, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: