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PARTNERS & PARTNERSHIPS

Election. Without this election, this reported the election. For example, in
The character of type of entity defaults to a corporation. several situations,65 the partnership’s
accountant filed a Form 1065 along
In several instances recently, a foreign
income reported by entity failed to make the election in with the Form 8996 after the due date
a partner is generally a timely manner. In each of these of the tax return. The IRS accepted the
determined at the instances,63 the IRS allowed the tax return and determined the election
was timely filed. In other instances,66
entity 120 days after the ruling to file
partnership level. the election. the partnership filed Form 1065 timely
In a different situation,64 the taxpay- but failed to include Form 8996. In this
er was formed as an LLC and thought situation, the IRS granted the partner-
2022, the IRS granted the partnership it had filed a valid election to be treated ship 60 days to file either an amended
an extension to file the election. as an S corporation. Soon after the tax return or Administrative Adjust-
election was made, the taxpayer was ad- ment Request to make the election. In
Missed elections vised it would be better to be treated as the last factual variation, partnerships
The Sec. 754 election is allowed when a partnership, so the taxpayer took the did not file either a Form 1065 or Form
a partner dies and his or her interest is steps to change its classification. Later, 899667 and requested additional time
transferred. In many cases, the election however, the taxpayer found out that to file the election. In this instance, the
is inadvertently missed. The IRS grant- the election to change its initial clas- partnerships were granted only 45 days
ed an extension of time to make the sification had not been filed timely. The after the ruling to file the election. ■
Sec. 754 election in several situations taxpayer had always filed a Form 1065,
where a partner died and the partner- and its owners had treated the entity as
ship missed making the election.62 a partnership instead of as an S corpo-
ration. The IRS allowed the entity 120
Extensions of time for days to file a late entity classification Contributor
other elections election to be treated as a partnership.
Hughlene A. Burton, CPA, Ph.D., is
There have also been recent letter an associate professor and the for-
rulings on requests to extend the Qualified opportunity funds
mer director of the Turner School of
time to make other types of elections, Partnerships that qualify as qualified
Accounting at the University of North
including entity elections and qualified opportunity funds under Sec. 1400Z-2
Carolina–Charlotte in Charlotte, N.C.
opportunity fund elections. must also file an election to self-certify
She is a past chair of the AICPA Part-
their assets using Form 8996, Quali- nership Taxation Technical Resource
Entity election fied Opportunity Fund. A number of
Panel and has served on the AICPA
Foreign entities formed as LLCs that partnerships missed the deadline for
Tax Executive Committee. For more
want to be taxed as a partnership in the the election during 2022. However,
information about this article, contact
United States must make an election how the IRS handled the missed elec-
thetaxadviser@aicpa.org.
on Form 8832, Entity Classification tion depended on how the partnership
AICPA RESOURCES
CPE self-study Tax Section materials (for members)
Reviewing Partnership Returns 2022 Partnership Engagement Letter — Form 1065
Advanced Taxation LLCs & Partnerships — Tax Staff Essentials 2022 Partnership Income Tax Return Organizer — Form 1065
For more information or to make a purchase, visit
aicpa.org/cpe-learning or call the Institute at 888-777-7077.

62. E.g., IRS Letter Rulings 202147007, 202211003, 202215001, 65. E.g., IRS Letter Rulings 202149003, 202151003, 202213007,
and 202220004. and 202239001.
63. E.g., IRS Letter Rulings 202145001, 202152008, 202210003, 66. E.g., IRS Letter Rulings 202205020 and 202209009.
and 202236001. 67. E.g., IRS Letter Rulings 202144010, 202203007, and 202233011.
64. IRS Letter Ruling 202219003.

40 February 2023 The Tax Adviser