Obtaining Extension to Make §754 Election

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Gregory W. Mitchell

Gregory W. Mitchell

Attorney

214.984.3410
gmitchell@freemanlaw.com

Gregory Mitchell joins Freeman Law to lead its bankruptcy practice. Mr. Mitchell is a native of the Dallas area, graduating from Southern Methodist University with a Bachelor’s Degree in Economics in 1991 and with his J.D. in 1994. In 1995, he obtained an LL.M. in Taxation from New York University. Mr. Mitchell currently directs the SMU Dedman School of Law’s federal taxpayer clinic. Mr. Mitchell’s background in tax makes him a natural fit for Freeman Law.

Prior to joining Freeman Law, Mr. Mitchell was the managing partner of The Mitchell Law Firm, L.P., a small firm he started in 2004, where he ran a diverse practice primarily focused on bankruptcy, tax and related litigation matters.

Prior to starting his own firm, Mr. Mitchell served as a Partner and General Counsel with Tax Automation, L.P., a national tax consulting firm. Mr. Mitchell was previously the National Director of Tax Technology at Ryan & Company, a national tax consulting practice, as well as a Senior Manager with KPMG, a “Big Four” accounting firm.

Private Letter Ruling 202244002, November 4, 2022

In a recent Private Letter Ruling, the Internal Revenue Service granted a partnership 120 days from the date of the letter to make an election under §754 of the Internal Revenue Code based on a finding that it acted reasonably and in good faith, and that granting relief would not prejudice the government’s interests.

The requesting partnership intended to make a §754 election for its most recent taxable year. However, the partnership failed to timely file such election with its partnership return for the taxable year.

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) 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) 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 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 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 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.

Based on the facts submitted and the representations made, the IRS concluded that the requirements of §§ 301.9100-1 and 301.9100-3 were satisfied, and thereby granted the extension.

 

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