Partnership received 120 days to make a late Section 754 election

Plain-English summary

A partnership failed to file a Section 754 election for the year a partner died, despite relying on tax advisers to make the election. The IRS found that the partnership satisfied the standards for late-election relief and granted 120 days to file the election with the appropriate amended-return or administrative-adjustment form. The partnership must adjust property basis and allowable basis-recovery deductions as though the election had been timely, even for affected closed years. Its partners must likewise reconstruct the basis of their partnership interests, and a specified partner must amend a later return within 120 days. If an administrative adjustment request is required, the relief also depends on making that filing and accounting for the Section 6227(b) adjustments.

Ruling snapshot

• Question: Could the partnership make a late Section 754 election for the year of a partner's death?
• Outcome: approved, subject to filings and basis adjustments within 120 days
• Key authorities: IRC §§ 734(b), 743(b), 754, and 6227(b); Treas. Reg. §§ 1.754-1(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202411011                                              Third Party Communication: None
 Release Date: 3/15/2024                                        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:1
 ------------------------------------------------------         PLR-113708-23
                                                                Date:
                                                                December 18, 2023


LEGEND

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

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

State             =        ------

Date              =        -----------------

Year 1            =        ------------------------------------------------------

B                 =         ------------------------
----------------------------------------------------

a                 =        ----------

Year 2            =        -----------------------------------------------------


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

PLR-113708-23                                  2

This letter responds to the letter dated June 26, 2023, and related correspondence,
submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations to file an election under § 754 of the Internal
Revenue Code.

FACTS

The information submitted states that X was organized as a limited liability company
under the laws of State and was classified as a partnership for Federal tax purposes. A,
a partner in X, died on Date. X inadvertently failed to timely file a § 754 election to
adjust the basis of X’s property with its return for Year 1, the year of A's death. X
represents that it relied on its tax advisors to timely file the § 754 election with its return
for Year 1.

LAW AND ANALYSIS

Section 754 provides 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 by sale or exchange or upon the death of a partner,
in the manner provided in § 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) 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, 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 that taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 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 Internal Revenue Code
except subtitles E, G, H, and I. Section 301.9100-1(b) provides that the term “regulatory
election” includes 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

PLR-113708-23                                  3

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 extension of time 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 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 an
election under § 754 effective for X’s Year 1 taxable year. The election should be made
in a written statement filed with the appropriate service center accompanying Form
1065-X, Amended Return or Administrative Adjustment Request (AAR), or Form 8082,
Notice of Inconsistent Treatment or AAR, and for any related filings as instructed in
Form 1065-X or Form 8082, as appropriate. A copy of this letter should be attached to
the relevant filing.

As a condition to this ruling, to the extent that X has not already done so, X must adjust
the basis of its properties on its relevant filings(s) 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 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
recovery of basis allowable for an open year are to be computed based upon the
remaining useful life or recovery period and using property basis as adjusted by the
greater of such deductions allowed or allowable in any prior year had the § 754 election
been timely made.

If X is required to file an AAR in order to properly amend a partnership return, then this
ruling is also contingent on X filing Form 1065-X or Form 8082 and taking into account
the adjustments required by § 6227(b).

Additionally, the partners of X must adjust the basis of their interests in X 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 members of X must
reduce the basis of their interests in X in the amount of any additional depreciation that
would have been allowable if the § 754 election had been timely made.

In addition, this ruling is contingent on partner B filing, within 120 days from the date of
this letter, an amended return for B’s Year 2 taxable year to report B’s a share of X’s

PLR-113708-23                                4

items consistently with the § 754 election having been timely made. A copy of this letter
should be attached to B’s Year 2 amended return.


Except for the specific ruling above, we express or imply no opinion concerning the
Federal tax consequences of the facts of this case under any other provision of the
Code. 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.

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.

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


                                          Sincerely,


                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)


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


Enclosure:
Copy for § 6110 purposes

PLR-113708-23                                           5


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