Partnership received conditional relief for late Section 754 election

Plain-English summary

A limited liability limited partnership intended to make a Section 754 election for the year a partner died, but its qualified tax professional neither made nor advised it to make the election. Based solely on the submitted facts and representations, the IRS found that the regulatory-relief requirements were satisfied and granted 120 days to make the election effective for that year. The partnership must file the appropriate amended return or administrative adjustment request and make the Section 734(b) and 743(b) basis adjustments that would have applied had the election been timely, including allowed-or-allowable cost recovery for prior years. Its partners must also adjust their outside bases, and any required administrative adjustment request must account for Section 6227(b).

Ruling snapshot

• Question: May the partnership make a late Section 754 election for the year a partnership interest transferred upon a partner's death?
• Outcome: approved, with conditions
• Key authorities: IRC §§ 734(b), 743(b), 754, 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: 202416010                                              Third Party Communication: None
 Release Date: 4/19/2024                                        Date of Communication: Not Applicable
 Index Number: 754.02-00, 9100.00-00,
               9100.15-00                                       Person To Contact:
                                                                --------------------, ID No. -----------------
 --------------------------                                     Telephone Number:
 ---------------------------------------------------            --------------------
 --------------------------------                               Refer Reply To:
 ------------------------                                       CC:PSI:B01
 ------------------------------------------------------------   PLR-114890-23
 ------                                                         Date:
                                                                January 18, 2024




LEGEND

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

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

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

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

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

Date 3           =                 --------------------------


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

This letter responds to a letter dated July 14, 2023, submitted on behalf of X by its
authorized representative, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations for X to file an election under § 754 of the
Internal Revenue Code.

                                                     FACTS

The information submitted states that X was formed as a limited liability limited
partnership under the laws of State on Date 1 and was classified as a partnership for
Federal income tax purposes. A, a member in X, died on Date 2. Due to A’s death, X
intended to file a § 754 election to adjust the basis of X’s property for the taxable year
ending Date 3, but X inadvertently failed to timely file the election with its otherwise timely
PLR-114890-23                                  2

filed return for the taxable year ending Date 3. X represents that it relied on its qualified
tax professional to make, or advise X to make, the § 754 election, but the qualified tax
professional neither made nor advised X to make the election.

                                   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
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.
PLR-114890-23                                   3

                                       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 taxable year ended Date 3. 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 X has not already done so, X must adjust the
basis of its properties on its relevant filing(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 is 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 filed.

If the partnership is required to file an AAR 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 partners of X must reduce the basis
of their interests in X in the amount of any additional cost recovery deductions that would
have been allowable if the § 754 election had been timely made.

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.
PLR-114890-23                                4

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 representative.


                                      Sincerely,

                                      Holly Porter
                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                      By: /s/
                                           Joy Spies
                                           Senior Technician Reviewer, Branch 1
                                           Office of the Associate Chief Counsel
                                           (Passthroughs & Special Industries)

Enclosure
      Copy for § 6110 purposes




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