Partnership received 120 days to make a section 754 election

Plain-English summary

A limited liability company treated as a partnership intended to make a section 754 election for the year in which an investor purchased an interest, but it did not file the election on time. The partnership represented that it acted reasonably and in good faith, was not using hindsight, and would not obtain a lower aggregate tax liability from the delay. The IRS found the regulatory relief standards satisfied and granted 120 days to file the election. The relief requires the partnership to make all section 734(b) and 743(b) property-basis adjustments that would have applied with a timely election, including allowable depreciation. Its partners must likewise adjust their outside bases, even for years whose assessment or refund limitation periods have expired.

Ruling snapshot

• Question: Could the partnership receive additional time to make a section 754 election for the year of an ownership transfer?
• Outcome: Approved for 120 days, subject to retroactive property-basis, depreciation, and partner-basis adjustments.
• Key authorities: IRC §§ 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b)(1) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201929016                                              Third Party Communication: None
Release Date: 7/19/2019                                        Date of Communication: Not Applicable
Index Numbers: 754.00-00, 754.02-00,
              9100.00-00, 9100.15-00                           Person To Contact:
                                                               -----------------------, ID No. -------------------
------------------------------------------------------------   ---------------------------------------------------

-                                                              Telephone Number:
------------------------------------------------------------   ----------------------
----------------------------------------------------------     Refer Reply To:
----------------------------                                   CC:PSI:03
----------------------------------                             PLR-132815-18
                                                               Date:
                                                               April 23, 2019




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

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

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

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

Date #2           =        ---------------------------

n                 =        --------------


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

      This letter responds to a letter dated September 21, 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 make an election
under § 754 of the Internal Revenue Code (Code).

                                                     FACTS

       The information submitted states that X was formed as a limited liability company
under the laws of State. X represents that on Date #1 X was a partnership for federal
tax purposes. On Date #1, A purchased an n% interest in X. X intended to make a
§ 754 election for X’s taxable year ending Date #2. However, X failed to timely file the
election.

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        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. X also represents that granting relief will not result in the affected
taxpayers, in the aggregate, having a lower tax liability than if the election had been
timely made.

                                              LAW

         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 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)(1) of the Income Tax Regulations provides, in part, 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(a)-1(e)
(including extensions thereof) for filing the return for the 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
6 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 an election whose due date is prescribed by a regulation published in the
Federal Register, or a revenue ruling, revenue procedure, notice, or announcement
published in the Internal Revenue Bulletin.

       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 the rules governing automatic extensions of time
for making certain elections. Section 301.9100-3 provides the standards the
Commissioner will use to determine whether to grant an extension of time for regulatory
elections that do not meet the requirements of § 301.9100-2.

        Under § 301.9100-3, a request for relief 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 (1) the taxpayer acted reasonably and in good
faith, and (2) the grant of relief will not prejudice the interests of the Government.

PLR-132815-18                             3




                                      CONCLUSION

        Based solely on the information 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 taxable year ended Date #2 and
thereafter. The election should be made in a written statement filed with the appropriate
service center for association with X’s return for its taxable year ended Date #2. A copy
of this letter should be attached to the election.

        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. 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 specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other provision of
the Code and the regulations thereunder. Specifically, whether X is a partnership for
federal tax purposes.

      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.

       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.

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


                                                Sincerely,



                                                Associate Chief Counsel
                                                (Passthroughs and Special Industries)




                                         By:    ______________________________
                                                Adrienne M. Mikolashek
                                                Chief, Branch 3
                                                Office of Associate Chief Counsel
                                                (Passthroughs & Special Industries)


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


cc: