IRS Eliminates Signatures on Section 754 Elections, Offering Tax Regulatory Reform Preview (and its Complexity?)

by Proskauer - Tax Talks

In a notice of proposed rulemaking issued on October 11, 2017 (the “NPRM”), the U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) proposed an amendment to existing regulations (the “Proposed Regulation”) under Section 754 of the Internal Revenue Code of 1986, as amended (the “Code”). The Proposed Regulation eliminates the requirement under current Treasury regulations (the “Current Regulation”) that an election under Code Section 754 be signed in order to be effective.

This is among the first of what may be a long series of notices modifying or eliminating existing Treasury Regulations, as indicated in the Treasury’s Second Report to the President on Identifying and Reducing Tax Regulatory Burdens (the “Second Regulatory Reform Report”), which was released by Treasury Secretary Mnuchin on October 2, 2017. The substantive effect of the Proposed Regulation is as simple as it sounds – the literal extent of the change is the deletion of the existing signature requirement in the Current Regulation – but the proposed applicability date provisions in the NPRM contain provisions of interest. Read this blog post for background, information about the Proposed Regulation and its proposed applicability date, and some context relating to the Second Regulatory Reform Report.

Background and the Current Regulation

Very briefly, if a partnership makes a Code Section 754 election, the basis of partnership property is adjusted on certain distributions of property by a partnership and on the transfer of a partnership interest, as provided in Code Sections 734 and 743, respectively. The effect of a Code Section 754 election applies to the year the election is validly made and all subsequent taxable years unless validly revoked by the partnership in the manner prescribed in the Treasury regulations.

The Current Regulation provides that the Code Section 754 election be made by attaching a written statement to the partnership tax return in the year in which the election is made, and that such return be filed no later than the time prescribed for filing the return for such taxable year, including extensions. The Current Regulation requires, among other things, that the written statement be signed by any one of the partners. If unsigned, the Current Regulation would deem the Code Section 754 election for the partnership invalid unless automatic relief under Treas. Regs. Sec. 301.9100-2, if available, is sought (“9100 relief”) or a private letter ruling is secured.

The Proposed Regulation and the Proposed Applicability Date Provision of the NPRM

The Proposed Regulation, as mentioned above, would eliminate the signature requirement, full stop. The NPRM states that the Proposed Regulation would apply to partnership taxable years ending on or after the date the Proposed Regulations are published in final form (which is the usual applicability date provision for proposed regulations, except in extraordinary circumstances). However, the NPRM’s proposed applicability date provision provides that “taxpayers” may rely on the Proposed Regulation for periods preceding the proposed applicability date, and specifically states that a partnership with an otherwise valid Code Section 754 election in place need not seek 9100 relief just for want of a signature.   Some observations about this:

  • It appears that all pending 9100 relief requests relating to missing signatures on Code Section 754 elections may be withdrawn, and although not explicitly stated, all pending private letter ruling requests may also be withdrawn. The NPRM provides no information on whether user fees paid in connection with such pending ruling requests will be refunded. If the NPRM or Proposed Regulation were withdrawn (which seems highly unlikely) and the period in which 9100 relief would otherwise have been available were to have lapsed, it is not clear whether the 9100 relief period would be treated as tolled during the pendency of the NPRM, or if a taxpayer would need to seek a private letter ruling (at substantially greater cost) instead.
  • The indefinite retroactive reliance provision in the NPRM seems to mean that effectively any partnership that attempted a Code Section 754 election that was submitted unsigned now has the ability to redetermine whether such election was desirable when made – even if no relief was ever sought or even considered in the past – subject only to general rules relating to time limits for filing amended returns and various statutes of limitation. A partnership that has determined the unsigned Code Section 754 election was desirable when made is entitled by the terms of the NPRM to rely on the Proposed Regulation now, and give full effect to such election. Conversely, a partnership that has determined that the unsigned Code Section election was not desirable when made arguably could revoke that election without complying with the revocation requirements under current Treasury regulations – although query whether this would be an impermissible change in method of accounting or could trigger other limits on taxpayers changing reporting positions.
  • In either case described above, the NPRM does not indicate what steps a taxpayer retroactively relying, or not, on the Proposed Regulation would have to take to communicate that decision the to the IRS. Additionally, the reliance provision refers to “taxpayers”. This might literally be read to mean that partners in a partnership with an unsigned Code Section 754 election can selectively apply the Proposed Regulation, although this is rather plainly not the intent and such a literal reading could permit a potentially distortive application of the rule. It remains to be seen whether and how these issues will be addressed in final regulations.

The Second Regulatory Reform Report and the Context of the Proposed Regulation

The NPRM is the first regulatory amendment to be issued subsequent to the Second Regulatory Reform Report, and presumably the first of the “over 200” regulations earmarked for modification or revocation by Treasury and identified in the Second Regulatory Reform Report beyond the eight specifically discussed there. It remains to be seen whether the open-ended taxpayer reliance provision contained in the NPRM is indicative of the approach Treasury and the IRS intend to take in modifying or revoking these regulations generally.

Finally, following from the above, these observations about the NPRM and the Proposed Regulation – while seemingly slight in this context – highlight the voluminous details that even the wholesale revocation of existing regulations will require the Treasury and IRS to address. Given that the Second Regulatory Reform Report states that there are potentially hundreds more notices of proposed rulemaking (and subsequent Treasury Decisions finalizing regulations) or notices withdrawing regulations entirely to come pursuant to this project, taxpayers and anyone else affected by the operation of the U.S. tax laws will need to be prepared to evaluate carefully with their advisors the effect of each such notice that potentially applies in their individual circumstances. And, the effect of such a massive undertaking on the further hundreds of existing issues on the IRS’s priority guidance plan also remains to be seen.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Proskauer - Tax Talks | Attorney Advertising

Written by:

Proskauer - Tax Talks

Proskauer - Tax Talks on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.