Partnership receives 120 days to make a late section 754 election

Plain-English summary

A general partnership intended to make an IRC § 754 election for a specified tax year but did not include the election with its timely partnership return. The IRS concluded that the partnership satisfied the standards for discretionary filing relief and granted 120 days to submit the election with the appropriate amended filing. The relief requires the partnership to calculate its property basis as though the election had been timely, including deductions that would have been allowed in earlier years. The partners must likewise adjust the bases of their partnership interests to reflect the late election. If an administrative adjustment request is required, the partnership must file the appropriate form and account for the changes under IRC § 6227(b).

Ruling snapshot

• Question: May a partnership receive additional time to make an IRC § 754 basis-adjustment election for an earlier tax year?
• Outcome: Approved, with 120 days to file subject to retroactive basis adjustments and related filing conditions
• Key authorities: IRC §§ 6227(b), 734(b), 743(b), 754; Treas. Reg. §§ 1.754-1(b)(1), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202536027                                              Third Party Communication: None
Release Date: 9/5/2025                                         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:PT&E:B03
---------------------------                                    PLR-122409-24
                                                               Date:
                                                               June 03, 2025




LEGEND

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

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

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

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


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

      This letter responds to a letter dated May 21, 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

       The information submitted states that X is a general partnership formed under
the laws of State. X intended to make § 754 election for its taxable year ended Date 1.

         However, X failed to timely file an election under § 754 with its partnership return
for its taxable year ended Date 1.

                                           LAW

        Section 754 provides, in part, 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)(1) of the Income Tax Regulations provides, in part, 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 thereof) for filing the return for the 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) defines the term
"regulatory election" as an election whose due date is prescribed by a regulation
published in the Federal Register, or a revenue ruling, revenue procedure, notice, or
announcement published in the Internal Revenue Bulletin.

       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 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 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 one hundred-twenty (120) days from
the date of this letter to make a § 754 election for its taxable year ended Date 1. 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 X’s taxable year
ended Date 2 to be associated with X’s return for its taxable year ended Date 1.

         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 § 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 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 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 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 as specifically ruled upon above, we express or imply no opinion
concerning the tax consequences of any facts discussed or referenced in this letter. 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.

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

       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 ruling request, it is subject to verification on examination.

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

                                                          Sincerely,

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



                                                      By: _____________________________
                                                         Elizabeth V. Zanet
                                                         Senior Technician Reviewer, Branch 3
                                                         Office of the Associate Chief Counsel
                                                         (Passthroughs, Trusts, and Estates)



Enclosure:
    Copy of this letter for § 6110 purposes

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