Reg. 301.7701-3 Classification of Certain Business Entities

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201937012
Release Date: 9/13/2019
Index Number: 754.00-00, 9100.00-00,
9100.31-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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ID No. ---
Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-132861-18
Date:
May 24, 2019
LEGEND
X = ---
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State = ---
Date = ---
Y = ---
Year = ---
Dear ---:
This letter responds to a letter dated October 25, 2018, 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

X was formed as a limited liability company under State law on Date and is treated as a partnership for federal tax purposes. Y, who owned an interest in X through a grantor trust, died in Year. X’s advisor did not inform X as to the availability of an election under § 754. Therefore, X failed to make an election under § 754 for Year.
PLR-132861-18 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 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 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, is 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 that 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) defines the term “regulatory election” as including 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 making 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

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Based on 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 an election under § 754, effective for its Year taxable year and thereafter. The election should be made in a written statement filed with the appropriate service center for association with X’s Year tax return. A copy of this letter should be attached to the § 754 election.
This ruling is contingent on X adjusting the basis of its properties to reflect any §
734(b) or § 743(b) adjustments that would have been made had the § 754 election been timely made. These basis adjustments must reflect any additional depreciation that would have been allowable had the § 754 election 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 election relief. Any depreciation deduction allowable for an open year is to be computed based upon the remaining useful life and using property basis adjusted by the greater of any depreciation allowed or allowable in any prior year had the § 754 election been timely made. Additionally, X’s partners must adjust the basis of their interests in X to reflect what that basis would be had the § 754 election 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 election relief. Specifically, X’s partners must reduce the basis of their interests in X in the amount of any additional depreciation that would have been allowable had the § 754 election been timely made.
Except as expressly provided herein, we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion as to whether X is a partnership for federal tax purposes.
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.
Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.
PLR-132861-18 4
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.
Enclosures (2)
Copy of this letter
Sincerely,
Holly Porter
Associate Chief Counsel
(Passthroughs & Special Industries)
By: Laura C. Fields
Laura C. Fields
Senior Technician Reviewer, Branch 1
Office of Associate Chief Counsel
(Passthroughs & Special Industries)
Copy of this letter for section 6110 purposes cc: