Partnership received more time to make a Section 754 election

Plain-English summary

A partnership missed the deadline to make a Section 754 election after the death of a partner's spouse in a community property state. The IRS concluded that the partnership satisfied the standards for regulatory-election relief and gave it 120 days to file the election. The relief is conditional: the partnership must make the Section 734(b) or 743(b) basis adjustments that would have applied if the election had been timely, including allowable basis-recovery deductions for earlier years even if limitation periods have expired. If an administrative adjustment request is required, the partnership must make the adjustments required by Section 6227(b). Its partners also must adjust the bases of their partnership interests to reflect the timely-election scenario.

Ruling snapshot

• Question: May the partnership make a late Section 754 election for the year in which the transfer occurred?
• Outcome: Approved, with 120 days to elect and subject to basis-adjustment and filing conditions
• Key authorities: IRC §§ 6227(b), 734(b), 743(b), 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202418004                                              Third Party Communication: None
 Release Date: 5/3/2024                                         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:01
                                                                PLR-115770-23
                                                                Date:
                                                                February 05, 2024




                                                    LEGEND

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

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

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

 State 1        =     ----------

 State 2        =     ----------------

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

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

 Year 1         =     ------



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

This letter responds to a letter dated August 8, 2023, and subsequent correspondence,
submitted on behalf of X by X’s authorized representative, 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 (“Code”).
PLR-115770-23                                 2


                                          FACTS

According to the information submitted, X is a limited liability company organized under
the laws of State 1 on Date 1 and is treated as a partnership for federal tax purposes.
On Date 2, A, spouse of B, one of the partners of X, died. A and B were residents of
State 2, a community property state. X represents it inadvertently failed to timely file a
§ 754 election with its Form 1065, U.S. Return of Partnership Income, for Year 1.


                                  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 § 734, and,
in the case of a transfer of a partnership interest, in the manner provided in § 743. Such
election 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) 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, 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) 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) 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 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-115770-23                                 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 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 1 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 return for its taxable year ended Year 1, or
(2) 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.

This ruling is contingent on X’s relevant filing(s) containing adjustments to the basis of
X’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’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 is required to file an AAR in order to properly amend a partnership tax return, then
this ruling is contingent on X filing Form 1065-X or Form 8082 and taking into account
the adjustments as 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 deductions for the
recovery of basis related to X's property that would have been allowable if the § 754
election had been timely made.

Except as specifically ruled upon 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.
PLR-115770-23                                  4


The ruling contained in this letter is 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 who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

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



                                                    Sincerely,


                                                    Associate Chief Counsel
                                                    (Passthroughs & Special Industries)



                                              By:          /s/
                                                    Caroline E. Hay
                                                    Senior Technician Reviewer, Branch 1
                                                    Office of the Associate Chief Counsel
                                                    (Passthroughs & Special Industries)




Enclosure
Copy for § 6110 purposes




cc: