Partnership received more time to make section 754 basis election

Plain-English summary

A partnership sold interests to new partners and intended to make an IRC § 754 election with its return but inadvertently failed to do so. The election would permit basis adjustments under IRC §§ 734 and 743 for distributions and transfers of partnership interests. Based on the submitted information and representations, the IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to file the election with the appropriate amended-return or administrative-adjustment filing. The relief requires the partnership and affected partners to make the basis and deduction adjustments that would have applied if the election had been timely, even for years whose limitation periods have expired.

Ruling snapshot

• Question: Could the partnership make a late IRC § 754 election after interests were sold to new partners?
• Outcome: Approved
• Key authorities: IRC §§ 734, 743, and 754; Treas. Reg. §§ 1.754-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202529001 Third Party Communication: None
Release Date: 7/18/2025 Date of Communication: Not Applicable
Index Number: 754.00-00, 754.02-00,
9100.00-00, 9100.15-00 Person To Contact:
-------------------------, ID No. -----------------
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---------------------------------------------------- Telephone Number:
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-------------------------- Refer Reply To:
CC:PT&E:B03
PLR-118903-24
Date:
April 16, 2025

Legend

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

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

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

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

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

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

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

   This letter responds to a letter dated October 8, 2024, and subsequent

correspondence, submitted on behalf of X by its authorized representatives, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations for X to file an election under § 754 of the Internal Revenue Code (Code).

                                                    FACTS

     According to the information submitted, X, a State limited liability company

formed on Date 1, became classified as a partnership for federal tax purposes on Date

2. On Date 3, interests in X were sold to new partners. X intended to, but inadvertently
   failed to timely file a § 754 election with its partnership return for its taxable year ended
   Date 4. X represents that it has acted reasonably and in good faith, and that granting
   relief will not prejudice the interests of the Government.

PLR-118903-24 2
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.

                                  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 120 days from the date of this letter to
make a § 754 election effective for its taxable year ended Date 4. 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 4. 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

PLR-118903-24 3
reflect any additional deductions for 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.

     Finally, affected 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, affected 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 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 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 requested ruling, it is subject to verification on examination.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the
Code provides that it 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 X’s authorized representatives.

                                       Sincerely,


                                       Associate Chief Counsel
                                       (Passthroughs, Trusts, & Estates)



                                                /s/
                                 By:
                                       Robert D. Alinsky
                                       Chief, Branch 3
                                       Office of the Associate Chief Counsel
                                       (Passthroughs, Trusts, & Estates)

PLR-118903-24 4
Enclosure:
Copy of this letter for § 6110 purposes

cc: ---------------------------------------

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