Two partnerships received more time to make Section 754 elections

Plain-English summary

Two partnerships failed to attach Section 754 elections to their returns for the year a common partner died. The IRS found that both partnerships satisfied the standards for regulatory-election relief and gave each partnership 120 days to file a written election with the appropriate amended return or administrative adjustment request. The relief requires the partnerships to make all Section 734(b) and 743(b) basis adjustments that would have applied if the elections had been timely, including deductions attributable to earlier years even when limitation periods have expired. The partnerships also must make the required Section 6227(b) adjustments, and affected partners must adjust the bases of their partnership interests to the amounts that would have resulted from timely elections.

Ruling snapshot

• Question: May the two partnerships make late Section 754 elections for the year a partner died?
• Outcome: Approved, subject to basis-adjustment and amended-filing conditions
• Key authorities: IRC §§ 6227(b), 734(b), 743(b), 754; Treas. Reg. §§ 1.754-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202418009                                              Third Party Communication: None
 Release Date: 5/3/2024                                         Date of Communication: Not Applicable
 Index Numbers: 754.00-00, 754.02-00,
               9100.00-00, 9100.15-00                           Person To Contact:
                                                                --------------, ID No. -----------------
 -------------------------------------                          Telephone Number:
 ---------------------------------------                        --------------------
 ------------------------------------------------------------   Refer Reply To:
 --------------------                                           CC:PSI:B03
 ------------------                                             PLR-116187-23
 ----------------------------                                   PLR-116188-23
                                                                Date:
 ----------------------------------
                                                                February 1, 2024




Legend

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

Y                 =         ----------------------------------------
--------------------------------------------------

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

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

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

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

Date 4            =        --------------------------

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


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

      This letter responds to a letter dated August 4, 2023, and subsequent
correspondence, submitted on behalf of X and Y by their authorized representatives,
requesting an extension of time under § 301.9100-3 of the Procedure and
PLR-116187-23, PLR-116188-23                  2

Administration Regulations to file elections under § 754 of the Internal Revenue Code
(Code).
                                          FACTS

        According to the information submitted, X, a State limited liability company
formed on Date 1, and Y, a State limited liability company formed on Date 2, are
classified as partnerships for federal tax purposes. A, a partner in X and Y, died on
Date 3. However, X and Y inadvertently failed to file a § 754 election with their
partnership returns for the taxable year ended Date 4.

                                   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, in the manner provided in § 743. Such an 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 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 no 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 six 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 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 the 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-116187-23, PLR-116188-23                  3


                                      CONCLUSION

        Based solely upon 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 result, X and Y are each granted an extension of time of 120 days from the date of
this letter to make a § 754 election effective for the taxable year ended Date 4. Each
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 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 filings.

       This ruling is contingent on X’s and Y’s relevant filings containing adjustments to
the basis of X’s and Y’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 recovery of basis related to X’s
and Y’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.

      Additionally, this ruling is contingent on X and Y each filing Form 1065-X or Form
8082 and taking into account the adjustments as required by § 6227(b).

        Finally, affected partners of X and Y must adjust the basis of their interests in X
and Y to reflect what the basis would be if the § 754 election had been timely made,
regardless of whether the statutory period of limitations 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 and Y must reduce the basis of their interests in X and Y in the amount of
any additional deductions for the recovery of basis related to X’s and Y’s property 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 a taxpayer is otherwise eligible to make
the election.

      The ruling contained in this letter is based upon information and representations
submitted by the taxpayers and accompanied by penalty of perjury statements executed
PLR-116187-23, PLR-116188-23                 4

by an appropriate party. While this office has not verified any of the material submitted
in support of the requested ruling, it is subject to verification on examination.

       This ruling is directed only to the taxpayers that requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.

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


                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                   By: ______________________
                                      Mary Beth Carchia
                                      Senior Technician Reviewer, Branch 3
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)




Enclosure:
      Copy of this letter for § 6110 purposes




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