August 8, 2022
IRS issues final regulations removing signature requirement for partnership IRC Section 754 elections
On August 4, 2022, the Treasury and IRS issued final regulations (TD 9963) removing the requirement that partners sign an election under IRC Section 754 to adjust the basis of partnership property when a partnership distributes property or transfers an interest in the partnership.
A partnership can make an election to adjust the basis of its property when (1) property is distributed under IRC Section 734 or (2) an interest in the partnership is transferred under IRC Section 743. The IRC Section 754 election applies to all subsequent tax years but may be revoked by the partnership.
The final regulations removed the signature requirement. Thus, under Treas. Reg. Section 1.754-1(b), the requirements for making an IRC Section 754 election are (1) a written statement, (2) filed with the partnership return for the tax year during which the distribution or transfer occurs, (3) within the correct filing period (with extensions).
The final regulations adopted without change proposed regulations published on October 12, 2017.
The regulations are effective as of August 5, 2022.
With the finalization of the regulations, the need to seek IRC Section 9100 relief from the IRS as to the validity of IRC Section 754 elections should be reduced. Prior to the change in regulations, unsigned IRC Section 754 election statements were treated as invalid, requiring taxpayers to seek relief through IRC Section 9100. The process set forth in the regulations will facilitate filing of valid IRC Section 754 elections without the need for a signature.