Partnership received relief for a late Section 754 election

Plain-English summary

A limited liability company treated as a partnership underwent a technical termination after a transfer of ownership interests. It intended to make a Section 754 election in connection with that transfer but failed to attach a timely election to its return. The partnership represented that it relied on its tax adviser, acted reasonably and in good faith, did not use hindsight, and would not prejudice the government's interests. The IRS found that the late-election relief requirements were satisfied and allowed the partnership to file a written election effective for the year of the technical termination. The conclusion refers to 120 days from the letter date, although its phrase “the earlier of 120 days” does not identify another deadline.

Ruling snapshot

• Question: Could the partnership make a late Section 754 election for the year of its technical termination?
• Outcome: Approved, with the deadline stated in the letter's conclusion.
• Key authorities: IRC §§ 708(b)(1)(B), 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: 201818003 Third Party Communication: None
Release Date: 5/4/2018 Date of Communication: Not Applicable
9100.15-00, 754.02-00
Person To Contact:
---------------------------------------- ------------------------------, ID No. ------------
---------------------------- -----------------
--------------------------------------------- Telephone Number:
---------------------------- ----------------------
Refer Reply To:
CC:PSI:B01
PLR-124284-17
Date:
January 30, 2018

LEGEND:

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

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

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

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

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

  This responds to a letter dated August 7, 2017, and subsequent correspondence,

submitted on behalf of X by X's authorized representatives, requesting that X be granted
an extension of time pursuant to § 301.9100-3 of the Procedure and Administration
Regulations to make an election under § 754 of the Internal Revenue Code, (Code).

Facts

   The information submitted states that X was formed as a limited liability company

under the laws of State on Date 1 and that X was treated as a partnership for federal tax
purposes. X underwent a technical termination under § 708(b)(1)(B) on Date 2. X
intended to make an election under § 754 in connection with the transfer of interests
that led to the technical termination. However, X inadvertently failed to file a timely §
754 election with the return for its taxable year ending on Date 2.

    X represents that it relied on its tax advisor for tax advice. 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.
PLR-124284-17 2

Law and Analysis

     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 that 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 Internal
Revenue 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.

    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 evidence 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 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 the earlier of 120 days from the date of
this letter to make an election under § 754, effective for the taxable year ending Date 2.
The election must be made in a written statement filed with the appropriate service
center. A copy of this letter should be attached to the statement filed.
PLR-124284-17 3

   Except as specifically set forth above, no opinion is expressed concerning the

federal tax consequences of the facts described above under any other provision of the
Internal Revenue Code and the regulations thereunder. Specifically, no opinion is
expressed or implied concerning whether X was or is a partnership for federal tax
purposes.

  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.

     In accordance with the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representatives.

                                       Sincerely,


                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                                       Wendy L. Kribell
                                By:    ________________________________
                                       Wendy L. Kribell
                                       Assistant to the Branch Chief, Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs and Special Industries)

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