Partnership received 120 days to make a late section 754 election

Plain-English summary

A partnership timely filed its return for the year in which a partner died, but it inadvertently omitted a valid section 754 election to adjust the basis of partnership property. The IRS found that the partnership satisfied the reasonable-cause and no-prejudice standards and gave it 120 days to make the election effective for that year and later years. The election could be associated with the original partnership return or filed with Form 8082 and any required administrative adjustment request. Relief required the partnership to calculate all section 734(b) and 743(b) basis adjustments as though the election had been timely, including deductions that would have been allowable in closed years. The partners also had to adjust their outside bases to the amounts that would have applied with a timely election.

Ruling snapshot

• Question: Should the partnership receive extra time to make a section 754 election after omitting it from a timely return?
• Outcome: approved (120-day extension, subject to retroactive basis adjustments)
• Key authorities: IRC §§ 6227, 734(b), 743(b), and 754; Treas. Reg. §§ 1.754-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202250003                                             Third Party Communication: None
 Release Date: 12/16/2022                                      Date of Communication: Not Applicable
 Index Number: 754.02-00
                                                               Person To Contact:
 ------------------------------                                ----------------------, ID No. -----------------
 -----------------------------------                           Telephone Number:
 ------------------------------------------------              --------------------
 ------------------------------                                Refer Reply To:
 --------------------------------------------------------      CC:PSI:B01
                                                               PLR-105936-22
                                                               Date:
                                                               September 19, 2022




                                                   LEGEND

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

 State             =       ------

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

 Trust             =       ------------------------------------------------
                           -----------------------

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

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

 Year              =       -------



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

This letter responds to a letter dated February 28, 2022, 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”).
PLR-105936-22                                  2


                                           FACTS

The information submitted states that Company was organized as a limited company
under the laws of State on Date 1. Company is classified as a partnership for Federal
tax purposes. A died on Date 2, holding a partnership interest in Company through
Trust. 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 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 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
PLR-105936-22                                  3

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 either (1) to be associated with Company's Year partnership tax return, or (2)
accompanying Form 8082, Notice of Inconsistent Treatment or Administrative
Adjustment Request (AAR), and any related filings as instructed in Form 8082, as
appropriate. A copy of this letter should be attached to the relevant filing.

This ruling is contingent on Company’s relevant filing(s) containing adjustments to the
basis of Company’s 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 deductions for the recovery of basis related to
Company’s property 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
deductions for the recovery of basis allowable for an open year are to be computed
based on the remaining useful life or recovery period and using property basis as
adjusted by the greater of any such deductions allowed or allowable in any prior year
had the § 754 election been timely made.

If Company is required to file an AAR in order to properly amend a partnership tax
return, then this ruling is also contingent on Company filing Form 8082 and taking into
account the adjustments as required by § 6227(b).

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 deductions for the recovery of basis related to Company’s property that
would have been allowable if the § 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.
PLR-105936-22                                    4


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,

                                           /s/
                                    Joy C. Spies
                                    Senior Technician Reviewer, Branch 1
                                    (Passthroughs & Special Industries)




Enclosure
Copy for § 6110 purposes


cc: