Partnership received 120 days for a late section 754 election after technical termination

Plain-English summary

A buyer acquired more than half of a limited liability company's partnership interests while the former section 708 technical-termination rule was still in effect. The acquisition caused a technical termination, and the partnership failed to file a section 754 election for the resulting short taxable year. The partnership represented that it acted reasonably and in good faith and that late relief would not prejudice the government. The IRS granted 120 days to file a written section 754 election for association with the return for that taxable year. The ruling did not decide whether the partnership otherwise qualified to make the election.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year ended by its technical termination?
• Outcome: approved, with 120 days to file the election statement
• Key authorities: IRC §§ 708(b)(1)(B), 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201942010                                              Third Party Communication: None
Release Date: 10/18/2019                                       Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.15-00
                                                               Person To Contact:
-----------------------------------                            -----------------------, ID No. ----------------
---------------------------------------------                  Telephone Number:
------------------------------------------------------------   ----------------------

-                                                              Refer Reply To:
------------------------                                       CC:PSI:B03
-----------------------------------                            PLR-101873-19
                                                               Date:
                                                               July 22, 2019
LEGEND

X:               -------------------------------------
----------------------------------------

Y:              -------------------------------

State:         ---------------

Date:       ----------------------------

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

      This letter responds to a letter dated January 29, 2019, 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

        X was a State limited liability company classified as a partnership for federal tax
purposes. On Date, Y purchased more than 50 percent of the interests in X causing a
technical termination of X under § 708(b)(1)(B), which was in effect at the time of the
purchase. X failed to file a § 754 election for its taxable year ended Date. X represents
that it acted reasonably and in good faith, and that granting relief to make a § 754
election will not prejudice the interests of the Government.

                                           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
PLR-101873-19                                2

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 no later than the time prescribed by § 1.6031(a)-1(e)
(including extensions) for filing the return for such 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 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.

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

                                     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 one hundred-twenty (120) days from the date of this
letter to make a § 754 election for its taxable year ended Date. The election should be
made in a written statement filed with the applicable service center for association with
X's return for its taxable year ended Date. A copy of this letter should be attached to the
statement filed.

       Except for the specific ruling above, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provision of the
Code. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.
PLR-101873-19                                3


       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 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 on examination.

      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 a power of attorney on file with this office, we are sending a
copy of this letter ruling to your authorized representatives.


                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                              By:    ____________________________
                                     Mary Beth Carchia
                                     Senior Technician Reviewer, Branch 3
                                     Office of Associate Chief Counsel
                                     (Passthroughs & Special Industries)

Enclosures (2):

Copy of this letter
Copy of this letter for § 6110 purposes