The IRS recently released proposed regulations under Section 754 (REG-116256-17
) that would modify the procedures for making a Section 754 election by removing the requirement that a partner sign the election statement. This new guidance is intended to reduce administrative burden and is expected to reduce the number of instances in which partnerships fail to file valid Section 754 elections.
If a partnership files a valid election under Section 754, then the basis of partnership property is adjusted under Sections 734 and 743 in the case of partnership distributions and transfers of partnership interests, respectively. Such an election generally applies to all distributions of property and transfers of partnership interests during the taxable year for which the election is filed and all subsequent taxable years.
Currently, a partnership makes a Section 754 election in a written statement filed with the partnership return for the taxable year during which the distribution or transfer occurs. Treas. Reg. Sec. 1.754-1(b) requires the statement to (i) set forth the name and address of the partnership making the election, (ii) be signed by any one of the partners, and (iii) contain a declaration that the partnership elects under Section 754 to apply the provisions of Section 734(b) and Section 743(b). If a partnership fails to properly make a Section 754 election the partnership can obtain relief either (i) automatically pursuant to Treas. Reg. Sec. 301.9100-2, or (ii) if the automatic procedure is not available, through a private letter ruling pursuant to Treas. Reg. Sec. 301.9100-3.
In the preamble to the proposed regulations, the IRS indicated that it has received numerous requests for so-called “9100 relief” with respect to unsigned Section 754 elections, in particular where the return has been filed electronically. Thus, the proposed regulations aim to ease this burden and would amend the requirements to make a valid Section 754 election by removing the requirement that the written statement be signed by a partner. Under the proposed regulations, a valid Section 754 election statement would need only identify the partnership and contain a declaration that the partnership is making a Section 754 election.
The amendments to Treas. Reg. Sec. 1.754-1(b) would be effective for tax years ending on or after the date the proposed regulations are finalized. However, taxpayers may rely on the proposed regulations for periods preceding final regulations. Taxpayers that have filed unsigned, but otherwise valid Section 754 elections will not need to seek 9100 relief. This guidance would lighten the burden of making a Section 754 election and reduce the time and costs involved in correcting a common mistake. Note, however, that the requirements for the time and manner of making a Section 754 otherwise remain in place, so partnerships still need to make sure that the Section 754 election statement is filed (with the partnership return) not later than the time prescribed for filing the partnership return for the taxable year (including extension).
Principal, Partnership Tax Technical Leader
Washington National Tax Office
T +1 202 521 1590
Senior Manager, National Tax Standards Group
Washington National Tax Office
T +1 202 521 1552
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