Partnership received 120 days to make a late section 754 election

Plain-English summary

A partnership failed to make an IRC § 754 election for the year in which a new partner purchased interests in it. The IRS concluded that the partnership met the standards for late regulatory-election relief and granted 120 days to file the election through the appropriate amended-return or administrative-adjustment procedure. The relief requires all resulting § 734(b) and § 743(b) basis adjustments to be reflected as though the election had been timely, including allowed-or-allowable deductions in closed years. The partners must also adjust their outside bases, and the partnership must use Form 1065-X or Form 8082 if an administrative adjustment request is required. The ruling does not determine whether the partnership is otherwise eligible to make the election.

Ruling snapshot

• Question: May the partnership receive additional time to make a section 754 election for the year a new partner acquired interests?
• Outcome: Approved, with a 120-day extension subject to corrective basis and filing conditions
• Key authorities: IRC §§ 734(b), 743(b), 754, 6227(b); 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: 202510009 Third Party Communication: None
Release Date: 3/7/2025 Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00,
9100.15-00 Person To Contact:
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------------------------------------------------------ Refer Reply To:
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----------------------- Date:
December 10, 2024

LEGEND

X = -----------------------------------------------------------------------------------------------
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State = -------------

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

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

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

A = -----------------------------------------------------------------------------------------------
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Dear ------------------:

This letter responds to a letter dated July 22, 2024, and subsequent 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 (Code).

                                                 FACTS

According to the information submitted, X is a limited liability company organized under
the laws of State on Date 1 and is treated as a partnership for federal tax purposes. On
Date 2, interests in X were purchased by a new partner, A. X inadvertently failed to
PLR-113069-24 2

make a § 754 election for its taxable year ending Date 3.

                              LAW AND ANALYSIS

Section 754 provides, in part, that if a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership property is adjusted
when there is a distribution of property or a transfer of a partnership interest. 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 not later than the time prescribed by § 1.6031(a)-1(e) (including extensions) for
filing the return for such taxable year.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time 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 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 extensions of time for regulatory elections that do not meet the
requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 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 the taxpayer
acted reasonably and in good faith, and 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 a § 754
election for its taxable year ending Date 3 and thereafter. The election should be made
in a written statement filed with the appropriate service center accompanying Form
PLR-113069-24 3

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 X’s taxable year ended Date 3 to be
associated with X’s return for its taxable year ended Date 3. 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 limitations 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 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 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
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 must
reduce the basis of their interest 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 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. According to § 6110(k)(3), this
ruling 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 representatives.
PLR-113069-24 4

                                             Sincerely,

                                             Holly Porter
                                             Associate Chief Counsel
                                             (Passthroughs & Special Industries)



                                       By:

                                             Christiaan T. Cleary
                                             Senior Technician Reviewer, Branch 1
                                             Office of Associate Chief Counsel
                                             (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

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