Partnership allowed late section 754 election

Plain-English summary

A foreign limited partnership made liquidating distributions to three partners but did not attach a section 754 election to its timely filed return because its tax preparers failed to explain the election and its consequences. The partnership represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted until the earlier of 120 days from the ruling or the closing of the limitations period to file the election. Relief is conditioned on reconstructing all section 734(b) and 743(b) basis adjustments, allowable depreciation, and partner outside bases as though the election had been timely made, even for affected closed years.

Ruling snapshot

• Question: Could the partnership make a late section 754 election for the year of its liquidating distributions?
• Outcome: Approved, subject to retroactive property, depreciation, and partner-basis adjustments.
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b)(1) and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201947014 Third Party Communication: None
Release Date: 11/22/2019 Date of Communication: Not Applicable
Index Numbers: 754.02-00, 9100.00-00,
9100.15-00 Person To Contact:
---------------------, ID No. ------------------
------------------ ----------------------------- Telephone Number:
-------------------------------------------------------- ----------------------
-------------------------------------------------------- Refer Reply To:
---------------------------------------- CC:PSI:B03
------------------------------------------------------------ PLR-112373-19
--------- Date:
August 27, 2019

LEGEND

X: = ---------------------------------------
-----------------------
--------------------------
Date: = -------
Country: = -----------------------

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

   This letter responds to a letter dated May 21, 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

     The information submitted states that X is a Country limited partnership that is

classified as a partnership for federal tax purposes. Liquidating distributions to three
partners of X were made in Date. X’s tax return for its Date taxable year was timely
filed, but a § 754 election to adjust the basis of partnership property was not filed with
the return because its tax preparers at the time failed to advise X about the availability
and tax consequences of making the election. X represents that it has acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the Government.
PLR-112373-19 2

                                 Law and Analysis

     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.

                                     Conclusion

    Based solely upon 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, the sooner of 120 days from the date of
this letter or the date the statute closes for its Date taxable year, to make a § 754
PLR-112373-19 3

election for its Date taxable year and thereafter. The election should be made in a
written statement filed with the applicable service center for association with X’s return
for its Date taxable year. A copy of this letter should be attached to the statement filed.

   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. Any depreciation deduction
allowable for an open year is to be computed based on the remaining useful life and
using property basis as 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 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 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 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.

  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.
PLR-112373-19 4

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representatives.

                                 Sincerely,

                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries)




                              By:_________________________
                                 Richard T. Probst
                                 Senior Technician Reviewer, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

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

cc: