Partnership gets more time to make a section 754 basis-adjustment election it filed its returns as if it had made

Plain-English summary

A § 754 election lets a partnership adjust the basis of its assets after a
partner's interest changes hands, matching inside basis to what happened at the
partner level. The election has to be filed with the partnership return for the
year of the transfer. Here a limited liability company taxed as a partnership
intended to make the § 754 election for a given year but inadvertently failed to
file a properly executed election, even though it and its partners had filed all
their returns as if the election were in place. It sought "9100 relief." Because
the § 754 deadline is set by regulation, the IRS can grant extra time when the
taxpayer acted reasonably and in good faith and is not using hindsight. The IRS
found those conditions met and granted 120 days to file the election, effective
for the transfer year and later years.

Ruling snapshot

• Question: May a partnership get an extension of time to make a late § 754 election?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b), 301.9100-3

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
                                                 Washington, DC 20224

Number: 201840003                                Third Party Communication: None
Release Date: 10/5/2018                          Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
              9100.00-00, 9100.15-00             Person To Contact:
                                                 --------------------, ID No. ------------------
-------------------------------                  Telephone Number:
---------------                                  ----------------------
---------------------------------                Refer Reply To:
------------------------------------------       CC:PSI:01
                                                 PLR-105797-18
                                                 Date:
                                                 June 28, 2018




LEGEND

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

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

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

Year        = -------


Dear --------------,

This letter responds to a letter dated February 20, 2018, 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”).

                                             FACTS

The information submitted states that X was formed on Date 1 under the laws of State
as a limited partnership classified as a partnership for federal tax purposes.
X intended to file an election under § 754 to adjust the basis of partnership property with
its return for its taxable year ending in Year. However, X inadvertently failed to file a
properly executed § 754 election.

X represents that it has filed returns for its taxable year ended in Year and subsequent
years consistent with the election having been made, and that all affected partners have
also filed their returns consistent with the election having been made.


Further, 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.

                                  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 statement must (i) set forth the name and address of the
partnership making the election, (ii) be signed by any one of the partners, and (iii)
contain a declaration that the partnership elects under § 754 to apply the provisions of
§§ 734(b) and 743(b).

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, or a revenue ruling, revenue procedure, announcement, or notice published in
the Internal Revenue Bulletin.

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 to establish that the taxpayer
acted reasonably and in good faith, and that granting 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 taxable year ended in Year. The election should be made in a written
statement filed with the appropriate service center. A copy of this letter should be
attached to the § 754 election. A copy is enclosed for that purpose.

Except as specifically ruled upon above, no opinion is expressed or implied concerning
the tax consequences of any facts discussed or referenced in this letter. This ruling is
directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may
not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, copies of this letter
ruling will be sent to your authorized representatives.



                                             Sincerely,

                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)



                                          David R. Haglund
                                    By:
                                          David R. Haglund
                                          Assistant to the Branch Chief, Branch 1
                                          (Passthroughs & Special Industries)




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