Partnership received late section 754 election relief after a partner's death

Plain-English summary

A partnership had a partner consisting of a single-member limited liability company disregarded from its owner. The owner died, and the partnership relied on an advisor who failed to make a section 754 election for that year. The IRS found the regulatory relief requirements satisfied and granted 120 days to file the election, effective for the year of death and later years. The partnership must retroactively make all section 734(b) and 743(b) property-basis adjustments that would have been allowable with a timely election. The partners must also conform their outside bases, even for closed years, while depreciation in open years must use the corrected basis and remaining useful life.

Ruling snapshot

• Question: Could the partnership make a late section 754 election for the year in which the owner of a disregarded partner died?
• Outcome: Approved for 120 days, subject to retroactive inside-basis, outside-basis, and depreciation corrections.
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                   Department of the Treasury
                                                           Washington, DC 20224

Number: 201929009                                          Third Party Communication: None
Release Date: 7/19/2019                                    Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.15-00
                                                           Person To Contact:
----------------------------                               ------------------, ID No. ----------------
-----------------------------------------------            Telephone Number:
------------------------------                             ----------------------
----------------------------------                         Refer Reply To:
                                                           CC:PSI:01
                                                           PLR-130016-18
                                                           Date:
                                                           April 05, 2019

Legend

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

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

Year 1 = -------

Year 2 = -------

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

LLC        = -----------------------



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

This responds to a letter dated October 3, 2017, 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 in Year 1 as a State limited liability
company classified as a partnership for federal tax purposes. A’s single member LLC,
which was treated as an entity disregarded from A for U.S. federal income tax purposes,
was a partner in X. A died during Year 2. X relied on its advisor to file an election under
§ 754, however; the advisor failed to make an election under § 754 for Year 2.

                                              Law and Analysis

PLR-130016-18                                 2



Section 754 provides, in part, that if a partnership files an election, in accordance with
the regulations prescribed by the Secretary, the basis of partnership property is
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 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, 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
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 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 extensions of time for making 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 (including affidavits described in §
301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and grant of relief will not prejudice the interests of
the government.

                                        Conclusion

Based 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 120 days from the date of this letter to make an election
under § 754, effective for its Year 2 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 2 tax return. A copy of this letter should be attached to the § 754 election.

PLR-130016-18                                  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 allowable if the § 754 election had been
timely made, regardless of whether the statutory period of limitation on assessment or
filing for a claim of 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 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 made, regardless
of whether the statutory period of limitations on assessment or filing a claim for refund
has expired for any year subject to this grant of late relief.

Except as expressly provided herein, we express or imply no opinion concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
letter. Specifically, we express or imply no opinion as to whether X is a partnership for
federal tax purposes.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer an accompanied by a penalty of perjury statement executed
by the appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification or examination.

Pursuant to a power of attorney on file with this office, we are sending a copy of this
letter to X’s authorized representatives.

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.


                                        Sincerely,

                                        Holly Porter
                                        Associate Chief Counsel (Passthroughs and
                                        Special Industries)

                                    By:Laura Fields
                                       Laura Fields
                                       Senior Technician Reviewer, Branch 1
                                       (Passthroughs and Special Industries)

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

cc: