Partnership receives 120 days to make late Section 754 election

Plain-English summary

A limited liability company taxed as a partnership timely filed its return for a year in which partnership interests were transferred. It inadvertently omitted the Section 754 election that would adjust the basis of partnership property following distributions or transfers of partnership interests. The partnership represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS found the regulatory-extension standards satisfied and gave the partnership 120 days from the ruling date to file the written election with the appropriate service center. The ruling did not determine whether the partnership was otherwise eligible to make the election.

Ruling snapshot

• Question: Could the partnership receive extra time to make the Section 754 election omitted from its timely filed return?
• Outcome: Approved; the partnership received a 120-day extension.
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1(b)(1), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202129004 Third Party Communication: None
Release Date: 7/23/2021 Date of Communication: Not Applicable
Index Numbers: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00 Person To Contact:
--------------------, ID No. -----------------
----------------------- Telephone Number:
---------------------------------- --------------------
------------------------------ Refer Reply To:
-------------------------------- CC:PSI:B03
PLR-125407-20
Date:
April 21, 2021

LEGEND:

X = -------------------------
-------------------------

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

Year = --------

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

This letter responds to a letter dated October 27, 2020, and subsequent
correspondence, submitted on behalf of X, by its authorized representative, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations for X to file an election under § 754 of the Internal Revenue Code (“Code”).

                                     FACTS

The information submitted states that X, a State limited liability company, is classified as
a partnership for federal tax purposes. Interests in X were transferred in Year. X's tax
return for its Year taxable year was timely filed, but a § 754 election to adjust the basis
of partnership property was inadvertently not filed with the return. X represents that it
has acted reasonably and in good faith, and that granting relief to make a § 754 election
will not prejudice the interests of the Government.

PLR-125407-20 2

                                      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 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)(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 of 120 days from the date of this letter to make a § 754
election for its Year taxable year. The election should be made in a written statement

PLR-125407-20 3

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 filed.

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. 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.

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,

                                         Associate Chief Counsel
                                         (Passthroughs & Special Industries)



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

Enclosure:
Copy of this letter for § 6110 purposes

cc: -------------