9100 relief to file a late section 754 election after a partnership interest sale

Plain-English summary

A partnership (an LLC taxed as a partnership) had part of its ownership sold to a new partner. When a partnership interest changes hands, the partnership can make a section 754 election so the buyer's share of the inside basis of the partnership's assets is adjusted to match what the buyer paid, which usually gives the buyer larger depreciation and smaller gain down the road. The partnership intended to make that election but missed the filing deadline, though it had filed its returns as if the election were in place. It asked the IRS for an extension of time under the section 301.9100-3 regulations, which allow the IRS to forgive a missed regulatory election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS found those standards met and granted 120 days from the date of the letter to file the section 754 election for that year and later years. The IRS cautioned that granting the extension is not a ruling that the partnership is otherwise eligible to make the election. This is a routine cure for a missed section 754 election.

Ruling snapshot

• Question: Should the IRS grant a late-election extension under § 301.9100-3 to file a section 754 election for the year a partnership interest was sold?
• Outcome: Approved (120 days to file the election)
• Key authorities: IRC § 754 (with §§ 734(b), 743(b)); Treas. Reg. § 1.754-1(b)(1); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202322001                                              Third Party Communication: None
 Release Date: 6/2/2023                                         Date of Communication: Not Applicable
 Index Number: 754.00-00, 9100.00-00,
               9100.15-00                                       Person To Contact:
                                                                --------------------------, ID No. ----------------
 ---------------------------------------------------            Telephone Number:
 -----------------------------------------                      --------------------
 ------------------------------                                 Refer Reply To:
 ----------------------                                         CC:PSI:B01
 ------------------------------------------------------------   PLR-100645-23
                                                                Date:
                                                                March 6, 2023

                                                    LEGEND

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

 p                =      ------

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

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

 Year             =      -------

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

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

This is in response to a letter dated December 21, 2022, and supplemental
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 to file elections under § 754 of the Internal Revenue Code.

                                                     FACTS

According to the information submitted, X was formed as a limited liability company
under the laws of State on Date 1 and is treated as a partnership for federal tax
purposes. On Date 2, p percent interest in X was sold. X represents that it intended to
PLR-100645-23                                2

adjust that basis of X’s partnership property as a result of Date 2 transfer. However, X
inadvertently failed to file a timely election under § 754 for its Year taxable year.

X represents that it has filed returns for its Year taxable year and subsequent taxable
years in a manner consistent with the § 754 election having been made.

                                  LAW AND ANALYSIS

Section 754 provides that if a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership property shall be
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. 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)(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, 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(a)-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 Internal Revenue
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
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 that granting 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
PLR-100645-23                                  3

result, X is granted an extension of time of one hundred twenty (120) days from the date
of this letter to make a § 754 election 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 X’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.

The ruling contained in this letter is based on 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.

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. 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 requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office, we are sending a copy of this
letter to your authorized representatives.

                                         Sincerely,

                                         Holly Porter
                                         Associate Chief Counsel
                                         (Passthroughs & Special Industries)

                                   By:                    /s/
                                         Jennifer N. Keeney
                                         Senior Counsel, Branch 1
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)

Enclosure
      Copy for § 6110 purposes

cc: