Partnership received 120 days for a late section 754 election after a partner's death

Plain-English summary

A married couple held separate interests in a limited partnership formed in a community-property state and later transferred those interests to a revocable trust. When one spouse died, that spouse's community-property interest passed through the trust to the surviving spouse. The partnership's tax adviser did not tell the partnership that a section 754 election was available for the year of death, so the election was missed. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to file the written section 754 election for the taxable year ending on the death date.

Ruling snapshot

• Question: May the partnership make a late section 754 election for the year in which a partner's interest passed to the surviving spouse?
• Outcome: approved, with 120 days to file the election statement
• Key authorities: IRC §§ 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: 201943008                                               Third Party Communication: None
Release Date: 10/25/2019                                        Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.15-00
                                                                Person To Contact:
---------------------------------------------                   -----------------------, ID No. ----------------
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----------------------------                                    Refer Reply To:
-----------------------------------------                       CC:PSI:B03
                                                                PLR-103649-19
                                                                Date:
LEGEND                                                          July 22, 2019

X:            ----------------------------------------------
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A:            ------------------------
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B:             ------------------------------
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C:             ----------------------------------------------
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State:        ---------------

Date 1:       ---------------------------

Date 2:       ---------------------

Date 3:       ----------------------

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

      This letter responds to a letter dated January 10, 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
PLR-103649-19                                 2

      According to the information submitted, X was formed as a limited partnership
under State law, a community property state, on Date 1. From Date 1 through Date 2, A
and B, who were married, each owned a separate partnership interest in X. On Date 2,
A and B transferred their partnership interests in X to a revocable trust, D. A died on
Date 3 and all of A’s assets held through D, including A’s community property interest in
X, passed to A’s surviving spouse B through D.

        X’s professional tax advisor failed to inform X of the availability of an election
under § 754 for the taxable year ending with A’s death. Accordingly, X inadvertently
failed to file an election under § 754. X requests an extension of time to make a § 754
election. X represents that it acted reasonably and in good faith, and that granting relief
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
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.
PLR-103649-19                                 3



                                      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 the taxable year ended Date 3. The election should
be made in a written statement filed with the applicable service center for association
with X’s return for its Date 3 taxable year. 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.

       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 representative.


                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                               By:    ____________________________
                                      Stacy L. Short
                                      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

cc: