Partnership received 120 days for a late Section 754 election

Plain-English summary

A partner died, causing that partner's interest and a terminating trust's separate interest in a partnership to pass to new owners. The partnership relied on its tax adviser and did not know that it could make a Section 754 election for the transfers. After learning of the missed election, it amended several returns to report basis adjustments consistent with an effective election. The partnership represented that it acted reasonably and in good faith, did not use hindsight, and would not prejudice the government's interests. The IRS granted 120 days to file the election statement for association with the return for the transfer year.

Ruling snapshot

• Question: Could the partnership make a late Section 754 election following transfers caused by a partner's death and a trust's termination?
• Outcome: Approved, with 120 days to file the election statement.
• 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: 201817018 Third Party Communication: None
Release Date: 4/27/2018 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-134053-17
Date:
January 24, 2018

LEGEND

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

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

B = -----------------

Trust1 = -----------------------------------

Trust2 = --------------------------------------

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

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

Date 3 = ---------------------------

Year 1 = -------

Year 2 = -------

Years = ---------------
PLR-134053-17 2

n% = -----

m% = ------

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

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

This is in response to a letter dated September 18, 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 partnership under the laws
of State on Date 1 and is treated as a partnership for federal tax purposes. On Date 2,
A, a partner of X, died. After A’s death, A’s n% interest in X was transferred to B. Upon
A’s death, Trust1 terminated and Trust1’s m% interest in X was transferred to Trust2.

X filed its income tax return for Year 1. X represents that it relied upon its tax advisor
when preparing the tax return for Year 1. X represents that it was unaware that it was
eligible to make a section 754 election. X further represents that around Year 2, X
became aware of its eligibility to make a section 754 election and its failure to timely
make the election with its return for its taxable year ending on Date 3. X represents that
in Year 2 it amended its returns for Years, reporting a step-up in basis consistent with
having made a valid section 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.
PLR-134053-17 3

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
301.9100-1(a). 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 to establish that the taxpayer acted reasonably and in good faith, and that
granting relief will not prejudice the interests of the government. Section 301-9100-3(a).

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. 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 Date 3. 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.
PLR-134053-17 4

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

                                   Sincerely,



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


                                  Laura C. Fields
                              By: _____________________________
                                  Laura C. Fields
                                  Senior Technician Reviewer, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: