IRS grants a partnership 120 days to make a late Section 754 basis-adjustment election after a partner's death

Plain-English summary

A limited liability company taxed as a partnership asked the IRS for extra time to make a Section 754 election. That election lets a partnership adjust the tax basis of its property when a partner's interest transfers (for example, at death), so the new holder's inside basis matches what they paid or inherited. One of the partners died, and although the partnership filed its return on time, it inadvertently left out the required 754 election statement. Under the "9100 relief" regulations (Treas. Reg. § 301.9100-3), the IRS can grant more time to make a missed regulatory election if the taxpayer acted reasonably and in good faith and granting relief will not harm the government's interests. The IRS found both tests met and gave the partnership 120 days to file the election, effective for the year in question and later years. The relief is conditioned on the partnership and its partners actually making the basis adjustments (including depreciation) that a timely election would have required, even for years now closed by the statute of limitations.

Ruling snapshot

• Question: Should the partnership get an extension under Treas. Reg. § 301.9100-3 to make a late Section 754 election after inadvertently omitting it from a timely return?
• Outcome: Approved (120-day extension granted, subject to making the corresponding basis adjustments)
• Key authorities: IRC § 754 (with §§ 734(b), 743(b)); Treas. Reg. §§ 1.754-1(b)(1), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202211003 Third Party Communication: None
Release Date: 3/18/2022 Date of Communication: Not Applicable
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-113306-21
Date:
December 17, 2021

Legend

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

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

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

Date 1 = --------------------

Date 2 = -----------------------

Year = -------

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

This letter responds to a letter dated June 3, 2021, 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 section 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 on
Date 2. Company represents that Company's tax return for Year was timely filed, but a
valid section 754 election to adjust the basis of partnership property was inadvertently
not filed with the return.

                                         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 section 734,
and, in the case of a transfer of a partnership interest, in the manner provided in section

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 section 754 to adjust the basis of partnership property under sections 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) of the Procedure and Administration Regulations 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
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 section 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 section 734(b) or section 743(b) adjustments that would
have been made if the section 754 election had been timely made. These basis
adjustments must reflect any additional depreciation that would have been allowable if
the section 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 section 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 section 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 section 754 election had been timely
made.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

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 the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

The rulings contained in this letter are 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 request for rulings, it is subject to verification on examination.

                                  Sincerely,

                                  Holly Porter
                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)

                           by:    _____________________
                                  Joy C. Spies
                                  Senior Technician Reviewer, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosure
Copy for §6110 purposes

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