9100 relief for a lower-tier partnership's late section 754 election

Plain-English summary

This ruling involves a tiered partnership structure: an upper-tier partnership (UTP) held a lower-tier partnership (LTP). After some restructuring, the partners of the upper-tier partnership sold their interests to new partners. A section 754 election lets a partnership adjust the tax basis of its assets after a transfer of a partnership interest, and under a longstanding IRS ruling that adjustment can flow through both tiers only if both partnerships have made the election. The upper-tier partnership had made its section 754 election, but the lower-tier partnership inadvertently failed to make its own, so it asked the IRS for an extension of time under Treasury Regulation section 301.9100-3. The IRS found the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days from the date of the letter to make the election for the year in question. Relief is conditioned on the partnership and its partners reflecting the basis adjustments that would have applied had the election been timely, even for years now closed by the statute of limitations.

Ruling snapshot

• Question: May a lower-tier partnership that missed the deadline for a section 754 election get an extension of time to file it?
• Outcome: approved
• Key authorities: IRC § 754; Treas. Reg. §§ 1.754-1(b), 301.9100-1, 301.9100-3; Rev. Rul. 87-115

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202505014                                              Third Party Communication: None
 Release Date: 1/31/2025                                        Date of Communication: Not Applicable
 Index Number: 754.00-00, 9100.00-00,
               9100.15-00                                       Person To Contact:
                                                                -----------------------------, ID No. -------------
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 ------------------------------------                           Telephone Number:
 -------------------------                                      --------------------
 -----------------------------                                  Refer Reply To:
 ----------------------------------------------------           CC:PSI:B01
                                                                PLR-109851-24
                                                                Date:
                                                                October 30, 2024




                                                   LEGEND

 LTP          =     -----------------------------------------------------------------------------------------------
                    --------------------------

 UTP          =     -----------------------------------------------------------------------------------------------
                    --------------------------

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

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

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

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

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

 Year 1       =     -------

 Year 2       =     -------



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

This letter responds to a letter dated May 1, 2024, submitted on behalf of LTP by LTP’s
authorized representatives, requesting an extension of time under § 301.9100-3 of the
PLR-109851-24                                 2

Procedure and Administration Regulations to file an extension under § 754 of the
Internal Revenue Code (Code).


                                          FACTS

According to the information submitted, LTP was organized under the laws of State on
Date 1 and treated as a partnership for federal tax purposes. LTP became a
disregarded entity of UTP on Date 2. UTP, which is treated as a partnership for federal
tax purposes, distributed an interest in LTP to one of its partners on Date 3 and, as a
result, LTP converted to a partnership for federal tax purposes. On Date 4, UTP’s
partners sold interests in UTP to new partners. UTP had made a § 754 election.
However, LTP inadvertently failed to file a § 754 election to adjust basis for partnership
property for its Year 1 taxable year.


                                  LAW AND ANALYSIS

Section 754 provides that if a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership property shall be
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 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 such 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(a)-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.

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
PLR-109851-24                                3

“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
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,
LTP is granted an extension of time of one hundred-twenty (120) days from the date of
this letter to make a § 754 election for its 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, for LTP’s Year 2 taxable year to be
associated with LTP’s Year 1 tax return. A copy of this letter should be attached to the
relevant filing.

This ruling is contingent on LTP’s relevant filing(s) containing adjustments to the basis
of LTP’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 LTP’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 LTP is required to file an AAR in order to properly amend a partnership tax return,
then this ruling is contingent on LTP filing Form 1065-X or Form 8082 and taking into
account the adjustments as required by § 6227(b).
PLR-109851-24                                   4

Additionally, the partners of LTP must adjust the basis of their interests in LTP 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 LTP
must reduce the basis of their interests in LTP in the amount of any additional
deductions for the recovery of basis related to LTP'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
or the regulations thereunder. 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 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 representatives.



                                          Sincerely,


                                          Associate Chief Counsel
                                          (Passthroughs and 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
PLR-109851-24                                            5


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