Partnership receives extension for Section 754 election

Plain-English summary

A partnership interest purchase caused a technical termination under the law then in effect, and the transaction documents showed that the parties intended the partnership to make a Section 754 election. The partnership inadvertently failed to file that election on time. The IRS granted 120 days to make the election effective for the relevant year and later years. The relief required the partnership and its partners to make the property-basis, depreciation, and outside-basis adjustments that would have applied if the election had been timely, even for affected closed years.

Ruling snapshot

• Question: Could the partnership receive an extension to make a Section 754 basis-adjustment election?
• Outcome: Approved, subject to retroactive basis and depreciation adjustments.
• Key authorities: IRC §§ 708(b)(1)(B), 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202120009 Third Party Communication: None
Release Date: 5/21/2021 Date of Communication: Not Applicable
Index Numbers: 9100.15-00
Person To Contact:
--------------------------------------------- -----------------, ID No. -----------------
----------------------------------------- Telephone Number:
------------------------------------------ --------------------
---------------------------- Refer Reply To:
CC:PSI:03
PLR-119067-20
Date:
February 11, 2021

Legend:

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

A: ------------------------------

m: ----

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

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

Year: ------------------------------------------------------

Dear --------------

  This letter responds to a letter dated August 31, 2020, and subsequent

correspondence submitted on behalf of X, by its authorized representatives, 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 is a limited liability company formed under the laws of State. On Date1, A

purchased an m% interest in X, resulting in a technical termination of X under
§ 708(b)(1)(B) of the Code (as in effect before December 22, 2017). The purchase and
sale agreement, including amendments, indicated the parties’ intention that X make a
§ 754 election in connection with the transaction. However, X inadvertently failed to
timely file the § 754 election for its Year taxable year.
PLR-119067-20 2

                              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 not later than the time prescribed by § 1.6031-1(e)
(including extensions) for filing the return for such taxable year.

    Under § 301.9100-1(c), 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.

    Requests for relief under § 301.9100-3 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 the taxpayer acted reasonably and in good
faith, and 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 of 120 days from the date of this letter to
PLR-119067-20 3

make a § 754 election effective for its Year 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 Year taxable year. A copy of this letter should be
attached to the statement.

    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 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 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 ruled upon above, we express or imply no opinion

concerning the tax consequences of any facts discussed or referenced in this letter.

   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.
PLR-119067-20 4

                                 Sincerely,

                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries)



                            By: __________________________________
                                Richard T. Probst
                                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: