IRS retroactively revoked late section 754 election relief

Plain-English summary

The IRS had previously given a taxpayer 120 days to make a late section 754 election. That relief was based on a representation that no affected return was under examination, before Appeals, or before a federal court. The IRS later learned that the taxpayer's return for the relevant year had in fact been in one of those proceedings when the ruling request was filed and that the Tax Court case was settled. Because the earlier ruling rested on a misstatement or omission of controlling facts, the IRS revoked it retroactively. The IRS declined to use its section 7805(b) discretion to limit the revocation's retroactive effect, but said the taxpayer could submit a separate new ruling request.

Ruling snapshot

• Question: Should an earlier ruling granting late section 754 election relief remain effective after the IRS learned that a controlling representation was incorrect?
• Outcome: Revoked retroactively, with no limitation on the revocation's retroactive effect.
• Key authorities: IRC §§ 754 and 7805(b); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2019-1 §§ 11.04 and 11.05

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201927012                                              Third Party Communication: None
Release Date: 7/5/2019                                         Date of Communication: Not Applicable
Index Numbers: 754.00-00, 9100.15-00,
              7805.00-00, 7805.04-01,                          Person To Contact:
              7805.05-00                                       ------------------, ID No. ------------------
                                                               Telephone Number:
----------------------------                                   ----------------------
------------------------------------------------------------   Refer Reply To:
----                                                           CC:PSI:B01
---------------------------------                              PLR-132965-18
--------------------------------------                         Date:
                                                               March 13, 2019




LEGEND

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

Year 1            =        -------

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



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

This letter revokes PLR 201641001 (PLR-100339-16), issued to X on July 1, 2016, in
response to a request from your authorized representative dated December 14, 2015.

In PLR-100339-16, the Internal Revenue Service (the “Service”) concluded that the
requirements of §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations had been satisfied and granted X an extension of time of one hundred
twenty (120) days from the date of PLR 20164100 to make a § 754 election for Year 1.

The private letter ruling’s conclusions were based on information and representations
submitted by your authorized representative. Since issuing the private letter ruling, the
Service has determined that there was a misstatement or omission of controlling facts
and that the facts provided to the Service were materially different from the controlling
facts on which the private letter ruling was based. Specifically, you represented in your

PLR-132965-18                                  2

ruling request that “No return of the Taxpayer . . . who would be affected by the
requested letter ruling is under examination, before Appeals, or before a Federal Court.”
We have learned that your return for Year 1 was, in fact, under examination, before
Appeals, or before a Federal Court at the time your ruling request was filed, and that a
decision was entered to settle that case in the Tax Court on Date. The Service is
therefore retroactively revoking PLR 201641001, and is not exercising its discretionary
authority to limit the retroactive effect of this revocation. See Section 11.05(1) of Rev.
Proc. 2019-1, I.R.B. 1, 62.

Section 11.04 of Rev. Proc. 2019-1, I.R.B. 1, 62, provides, in relevant part, that where a
letter ruling is revoked or modified by a letter to the taxpayer, the letter will state whether
the revocation or modification is retroactive. Section 11.04 further provides that if a
letter ruling is revoked or modified, the revocation or modification applies to all years
open under the period of limitation unless the Service uses its discretionary authority
under § 7805(b) of the Internal Revenue Code (the “Code”) to limit the retroactive effect
of the revocation or modification.

Section 11.05 of Rev. Proc. 2019-1, I.R.B. 1, 62, provides that an Associate Office will
revoke a letter ruling and apply the revocation retroactively to the taxpayer for whom the
private letter ruling was issued if there has been a misstatement or omission of
controlling facts or the facts at the time of the transaction are materially different from
the facts on which the letter was based.

Section 7805(b)(8) of the Code provides that the Secretary may prescribe the extent, if
any, to which any ruling (including any judicial decision or any administrative
determination other than by regulation) relating to the internal revenue laws shall be
applied without retroactive effect.

X may file a new request for a private letter ruling in the future. Such a future request
will be considered separate from the revoked request. As such, any new request must
independently comply with the normal requirements for a private letter ruling.

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-132965-18                                3

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative. We are also sending a copy of this letter to the
appropriate operating division.

                                      Sincerely,



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



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


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