Five partnerships receive 120 days for late section 754 elections

Plain-English summary

An upper-tier partnership and four lower-tier partnerships inadvertently failed to make section 754 elections for a tax year in which a partner died. A second partner died in a later year. Section 754 elections allow partnerships to adjust the basis of partnership property after certain transfers of partnership interests or distributions. The IRS found that all five partnerships met the standards for regulatory relief and gave them 120 days to file the elections. The relief requires the partnerships and their partners to make the basis adjustments that would have applied if the elections had been timely, even for years whose limitation periods have expired. Any partnership required to use an administrative adjustment request must also file Form 8082 and account for the adjustments under section 6227(b).

Ruling snapshot

• Question: May the upper-tier partnership and four lower-tier partnerships make late section 754 elections?
• Outcome: Approved, with a 120-day extension and corrective-adjustment conditions
• Key authorities: IRC §§ 734(b), 743(b), 754, and 6227(b); Treas. Reg. §§ 1.754-1 and 301.9100-3; Rev. Rul. 87-115

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202326009                                            Third Party Communication: None
Release Date: 6/30/2023                                      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-119362-22
                                                             PLR-119363-22
                                                             PLR-119364-22
                                                             PLR-119365-22
                                                             PLR-119366-22
                                                             Date:
                                                             April 04, 2023



                                                  LEGEND

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

LTP1             = --------------------------------------------------------
                   -----------------------

LTP2             = ----------------------------------------------------------------
                   -----------------------

LTP3             = -------------------------------------------------------------------------
                   -----------------------

LTP4             = ------------------------------------------------------
                   -----------------------

GP               = --------------------------------------------


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

Decedent1 = ----------------------
            ----------------------------------
            -----------------------

Decedent2 = ----------------------------
PLR-119362-22 through PLR-11966-22               2

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

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

 Year 1         = -------

 Year 2         = -------

 m              = --------

 n              = ---

 p              = --

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

         This letter responds to a letter dated October 3, 2022, submitted on behalf of X,
LTP1, LTP2, LTP3, and LTP4 by their 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 (the ‘Code’).

                                               FACTS

       According to the information submitted, X is a State limited partnership and
LTP1, LTP2, LTP3, and LTP4 (collectively, the “lower-tier partnerships”) are State
limited liability companies, all of which are classified as partnerships for federal tax
purposes. GP is a State corporation that is the general partner of X. X owns an m%
interest in LTP1, and an n% interest in LTP2, LTP3, and LTP4. Additionally, GP owns a
p% interest in each of the lower-tier partnerships.

     On Date 1 (within Year 1), Decedent1 died owning an interest in X.
Subsequently, Decedent2 died on Date 2 (within Year 2) owning an interest in X.

       X represents that it inadvertently failed to timely file a § 754 election to adjust the
basis of partnership property for its Year 1 taxable year and thereafter. Additionally,
LTP1, LTP2, LTP3, and LTP4 each represent that they inadvertently failed to timely file
a § 754 election to adjust the basis of partnership property for their Year 1 taxable year
and thereafter.

                                       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
PLR-119362-22 through PLR-11966-22            3

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.

       Rev. Rul. 87-115, 1987-2 C.B. 163, provides that the optional adjustment to basis
under § 754 will be available to both an upper-tier partnership (UTP) and a lower- tier
partnership (LTP) when there is a sale or exchange of a partnership interest or the
death of a partner in UTP, and both UTP and LTP have made an election under § 754
to adjust the basis of partnership property on a sale or exchange of a partnership
interest or on the death of a partner.

       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 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 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.

        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 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, LTP1, LTP2, LTP3, and LTP4 are each granted an extension of time of one
hundred-twenty (120) days from the date of this letter to make a § 754 election for their
Year 1 taxable year and thereafter. The elections should be made in a written statement
filed with the appropriate service center either (1) to be associated with: X, LTP1, LTP2,
PLR-119362-22 through PLR-11966-22            4

LTP3, and LTP4’s Year 1 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 filings.

        This ruling is contingent on X, LTP1, LTP2, LTP3 and LTP4’s relevant filings
containing adjustments to the basis of X, LTP1, LTP2, LTP3, and LTP4’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 X, LTP1, LTP2, LTP3, and LTP4’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 X, LTP1, LTP2, LTP3 and/or LTP4 are required to file an AAR in order to
properly amend a partnership tax return, then this ruling is also contingent such
partnership filing Form 8082 and taking into account the adjustments as required by
§ 6227(b).

       Additionally, the partners of X, LTP1, LTP2, LTP3, and LTP4 must adjust the
basis of their interests in X, LTP1, LTP2, LTP3, and LTP4 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, LTP1, LTP2,
LTP3, and/or LTP4 must reduce the basis of their interests in X, LTP1, LTP2, LTP3
and/or LTP4 in the amount of any additional deductions for the recovery of basis related
to X, LTP1, LTP2, LTP3, and/or LTP4’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.

      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.

      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-119362-22 through PLR-11966-22             5


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


                                       Sincerely,

                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)




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



Enclosure
      Copy for § 6110 purposes



cc: