Partnership received 120 days to make a late section 754 election

Plain-English summary

A partnership had previously made a section 754 election, but a later ownership change caused a technical termination under the law then in effect. After another partner-interest purchase, the partnership inadvertently failed to make a new section 754 election for the affected year. The IRS found that the regulatory relief standards were satisfied and granted 120 days to make the election through the appropriate amended return or administrative adjustment process. The partnership and its partners must include all inside- and outside-basis consequences that would have applied if the election had been timely, even where limitations periods have expired.

Ruling snapshot

• Question: May the partnership make a late section 754 election after its earlier election ended with a technical termination?
• Outcome: Approved, subject to filing and basis-adjustment conditions within 120 days
• Key authorities: IRC §§ 708, 734, 743, 754, and 6227(b); Treas. Reg. §§ 1.754-1(b) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202521005 Third Party Communication: None
Release Date: 5/23/2025 Date of Communication: Not Applicable
Index Number: 754.00-00, 9100.00-00,
754.02-00, 9100.15-00 Person To Contact:
--------------------, ID No. -----------------
------------------------------- Telephone Number:
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----------------------------------- Refer Reply To:
------------- CC:PT&E:B01
------------------------ PLR-114862-24
--------------------------- Date:
February 19, 2025

                                             LEGEND

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

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

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

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

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

Date 5 = ------------------

Date 6 = ---------------------

Date 7 = ---------------------

PLR-114862-24 2

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

This letter responds to a letter dated June 24, 2024, 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).

                                      FACTS

According to the information submitted, X is a limited liability company formed under the
laws of State on Date 1 and is treated as a partnership for federal tax purposes. On
Date 2, existing partners in X purchased the interests of another partner, and X filed a
§ 754 election for its taxable year ended Date 3. On Date 4, A purchased an interest in
X, resulting in a technical termination of X under § 708(b)(1)(B) of the Code (as it was in
effect at the time). On Date 5, A purchased an additional interest in X, but X
inadvertently failed to timely file a § 754 election for its taxable year ended Date 6.

                              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.

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

PLR-114862-24 3

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 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 is granted an extension of time of one hundred-twenty (120) days from
the date of this letter to make an election under § 754 effective for X’s taxable year
ended Date 6. 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 any related filings as instructed in Form 1065-X or Form 8082,
as appropriate, for X’s taxable year ended Date 7, to be associated with its return for the
taxable year ended Date 6. 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
the 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

PLR-114862-24 4

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
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 requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

                                  Sincerely,


                                  Jeffrey Erickson
                                  Associate Chief Counsel
                                  (Passthroughs, Trusts, and Estates)


                               By:
                                     Brian J. Barrett
                                     Senior Technician Reviewer, Branch 3
                                     Office of the Associate Chief Counsel
                                     (Passthroughs, Trusts, and Estates)

Enclosure (1)
Copy for § 6110 purposes

PLR-114862-24 5

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