Grants 120 days for late section 754 election

Plain-English summary

A limited partnership failed to make a timely section 754 election for the year in which one of its partners died. The partnership represented that the omission was inadvertent, that it acted reasonably and in good faith, and that relief would not prejudice the government. The IRS granted 120 days from the ruling date to file the election. Relief was conditioned on the partnership and its partners making all basis and depreciation adjustments that would have applied if the election had been timely, including adjustments affecting years whose limitation periods had expired. Depreciation for open years must be computed using the remaining useful life and the properly adjusted basis.

Ruling snapshot

• Question: Could the partnership receive extra time to make a section 754 election for the year of a partner's death?
• Outcome: Approved, with 120 days to file and with retroactive basis and depreciation adjustments required.
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201834004 Third Party Communication: None
Release Date: 8/24/2018 Date of Communication: Not Applicable
9100.15-00, 754.00-00
Person To Contact:
------------------------------------------------ ------------------------------, ID No. ------------
---------------------------------------------------- -----------------
------------------------- Telephone Number:
-------------------------------------- ----------------------
Refer Reply To:
CC:PSI:B01
PLR-103784-18
Date:
May 17, 2018

LEGEND:

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

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

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

Year 1 = -------

Year 2 = -------

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

  This is in response to a letter dated January 30, 2018, 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.

Facts

    According to the information submitted, X was formed as a limited partnership in

Year 1. X is treated as a partnership for federal tax purposes. A, a partner of X, died
on Date. X inadvertently failed to timely make an election under § 754 for the year of
A's death. X 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-103784-18 2

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 301.9100-1(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 2. The election should be made in a
written statement filed with the applicable service center for association with X's tax
return. A copy of this letter should be attached to the statement filed.
PLR-103784-18 3

    This ruling is contingent on X adjusting the basis of its properties to reflect any §

734(b) or 743(b) adjustments that would have been made if the § 754 election had been
timely made. These basis adjustments must reflect any additional depreciation that
would have been allowable if the § 754 election had been timely made, regardless of
whether the statutory period of limitation on assessment or filing a claim for refund has
expired for any year subject to this grant of late relief. Any depreciation deduction
allowable for an open year is to be computed based upon the remaining useful life and
using property basis as adjusted by the greater of any depreciation deduction allowed or
allowable in any prior year had the § 754 election been timely made. Additionally, the
partners of X must adjust the basis of their interests in X to reflect what that basis would
be if the § 754 election had been timely made, regardless of whether the statutory
period of limitation on assessment or filing a claim for refund has expired for any year
subject to this grant of late relief. Specifically, the partners of X must reduce the basis
of their interests in X in the amount of any additional depreciation that would have been
allowable if the § 754 election had been timely made.

   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) 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 representative.

                                       Sincerely,


                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)

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

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