Partnership received 120 days to make late Section 754 election

Plain-English summary

A professional-services limited liability company treated as a partnership missed the deadline to make a Section 754 election for the year in which a buyer acquired a partnership interest. The partnership represented that it acted reasonably and in good faith and that late relief would not prejudice the government. The IRS found that the requirements of Treasury Regulations Sections 301.9100-1 and 301.9100-3 were satisfied. It granted 120 days from the ruling date to file the election for the redacted tax year and later years.

Ruling snapshot

• Question: Could the partnership receive additional time to make a Section 754 basis-adjustment election after inadvertently missing the filing deadline?
• Outcome: approved
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                         Department of the Treasury
                                                                  Washington, DC 20224

 Number: 201830010                                                Third Party Communication: None
 Release Date: 7/27/2018                                          Date of Communication: Not Applicable
 Index Numbers: 754.02-00, 9100.15-00
                                                                  Person To Contact:
 -------------------------------------------------                ---------------------------, ID No. ---------------
 ----------------------------                                     -----------------
 ----------------------------                                     Telephone Number:
 ------------------------------                                   ----------------------
                                                                  Refer Reply To:
                                                                  CC:PSI:B03
                                                                  PLR-136023-17

                                                                  Date:
                                                                  April 12, 2018


          LEGEND

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

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

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

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

          N          =     ------

          Year       =     --------


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

       This letter responds to a letter dated November 20, 2017, and subsequent
 correspondence, 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).
PLR-136023-17                                 2


                                          FACTS

         The information submitted states that X is a State professional services limited
liability company and is classified as a partnership for federal tax purposes. On Date, A
purchased N% interest in X. X inadvertently failed to make a timely election under
§ 754 for the year of A’s purchase (Year).

        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
PLR-136023-17                                   3

acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                                      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 for its Year taxable year and thereafter. The election should be
made in a written statement filed with the appropriate service center for association with
X’s Year tax return. A copy of this letter should be attached to the statement filed.

       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 or imply 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.

      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter ruling to your authorized representative.

       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 the Associate Chief Counsel
                                                    (Passthroughs & Special Industries)

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