IRS grants extra time to make a late Section 754 basis-adjustment election

Plain-English summary

A limited liability company taxed as a partnership had a partner die
during a tax year. That death transferred the partner's interest, a
situation where a "Section 754 election" is valuable because it lets the
partnership adjust (usually step up) the basis of its assets to match the
new owner's basis, under §§ 734(b) and 743(b). The partnership timely
filed its return but inadvertently left off the required § 754 election
statement. It asked the IRS for an extension under the "9100 relief"
regulation, § 301.9100-3, which allows more time for a regulatory
election when the taxpayer acted reasonably and in good faith and relief
won't prejudice the government. The IRS concluded those standards were
met and granted 120 days to make the election, effective for that year
and after. The relief is conditioned on the partnership and its partners
adjusting their bases (including any depreciation that would have been
allowed) as if the election had been timely made, even for years now
closed by the statute of limitations. This is a routine but valuable form
of relief for partnerships that miss the § 754 election.

Ruling snapshot

• Question: Should the partnership get an extension of time under
  § 301.9100-3 to make a late § 754 election for the year a partner died?
• Outcome: Approved (120-day extension granted, subject to conforming
  basis adjustments)
• Key authorities: IRC § 754; §§ 734(b), 743(b); Treas. Reg.
  § 1.754-1(b)(1); Treas. Reg. §§ 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                     Department of the Treasury
                                             Washington, DC 20224

Number: 202050011                            [Third Party Communication:
Release Date: 12/11/2020                     Date of Communication: Month DD, YYYY]
Index Number: 754.00-00, 754.02-00,
              9100.00-00, 9100.15-00

Person To Contact:
----------------, ID No. ----------
Telephone Number:
--------------------
Refer Reply To:
CC:PSI:01
PLR-109290-20
Date:
September 10, 2020

Legend

Company            = ----------------------------------

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

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

Year               = -------

Date1              = -------------------

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

This letter responds to a letter dated April 3, 2020, submitted on behalf of Company by
its authorized representative, 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 Company was organized as a limited liability
company under the laws of State on Date 1. Company is classified as a partnership for
federal tax purposes. A held a partnership interest in Company when A died in Year.

Company's tax return for Year was timely filed, but a valid § 754 election to adjust the
basis of partnership property was inadvertently not filed with the return. Company
represents that it has acted reasonably and in good faith, and that granting relief will not
prejudice the interests of the Government.

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.

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, Company 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 taxable year and thereafter. The
election should be made in a written statement filed with the appropriate service center
for association with Company's Year return. A copy of this letter should be attached to
the statement filed.

This ruling is contingent on Company filing all required returns and 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 upon 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 Company must adjust the
basis of their interests in Company 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 Company must reduce the basis of their
interests in Company in the amount of any additional depreciation that would have been
allowable if the § 754 election had been timely made.

Except as specifically ruled upon above, we express or imply no opinion concerning the
tax consequences of any facts discussed or referenced in this letter. Specifically, we
express no opinion as to whether Company is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer who requested 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.

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,

                                      HOLLY PORTER
                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                      /s/ Laura C. Fields

                                      By Laura C. Fields
                                      Senior Technician Reviewer, Branch 1
                                      Office of Associate Chief Counsel
                                      (Passthroughs & Special Industries)



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


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