In general, IRC 754 allows a partnership to adjust the basis of the property within a partnership under IRC 734(b) and IRC 743(b). These adjustments can only be made if the partnership has made an election under IRC 754. These adjustments arise when one of two triggering events occur:

To make the election, a partnership must attach a statement to the partnership’s timely filed tax return (including extensions) for the tax year in which a distribution or transfer occurs. The statement must include both:

Once an election is made under IRC 754, it applies to all distributions and transfers made during the tax year with respect to which the election is initially filed, and to all such transactions in any subsequent tax years unless the election is revoked. It can only be revoked with permission of the Commissioner.

A partnership wishing to revoke the election should file a request using Form 15254, Request for Section 754 Revocation, no later than 30 days after the close of the partnership year for which the revocation is intended to take effect. The request must be signed by one of the partners.

Treasury Regulation 1.754-1(c) provides examples of situations which may warrant approving an application for revocation. These examples include situations where the IRC 754 election results in an administrative burden, such as:

The partnership must provide all information relating to the reasons for the revocation request and a statement of whether the election, if not revoked, would result in a reduction in the basis of the partnership’s property under IRC 734(b) or 743(b).

Regardless of whether an IRC 754 election is in place, in the case of partnership distributions, the partnership must reduce the basis of its assets under IRC 734(b) if the sum of the distributee partner’s loss on the distribution and the basis increase in the distributed properties with respect to the distributee partner is more than $250,000. See IRC 734(b) and (d)(1). For transfers of partnership interests, the partnership must adjust the basis in property having a substantial built-in loss more than $250,000 immediately after a transfer of a partnership interest. See IRC 743(b) and (d).

Form 15254 instructs partnerships to file requests to revoke IRC 754 elections with the Ogden, UT Service Center.

The requests received are routed to the LB&I Pass-Through Entity (PTE) Global High Wealth Workload Services (GHW WLS) area in the Ogden Service Center.

Within fourteen (14) days, GHW WLS will scan the documents and process the Form 15254, Section 754 Revocation Request package using the current procedures after reviewing the BOD Code on the IDRS Command Code (CC) INOLES screen. See http://serp.enterprise.irs.gov/job-aids/command-code/inoles-bmf.html, SERP: INOLES Definer S Response Screen.

As part of processing the request, GHW WLS will input transaction code (TC) 971 with action code (AC) 754 on the partnership’s entity profile using IDRS CC REQ77/FM77. This action updates the 754 indicator on the entity from “0” (default) to “1” (received) and generates a document locator number (DLN).

GHW WLS will retain the original documents until a final determination is made and communicated to GHW WLS by the relevant division. See the separate document retention procedures for each division.

GHW WLS submits the request received to the LB&I PTE partnerships practice network (PN) via the Request Tracker https://organization.ds.irsnet.gov/sites/LbiEaPaRequestTracker/Lists/Requests/NewForm.aspx?PN=12 Submit an Inquiry link along with IDRS research, including but not limited to INOLES, AMDISA, CFINK, BMFOLI, and BMFOLT. See Exhibit 4.31.11-1, LB&I Instructions for Submitting an Inquiry to the PTE PN for IRC 754 revocation requests.

The LB&I partnerships PN coordinator will assign the inquiry to a subject matter expert (SME) within seven days of receipt via the Request Tracker.

The SME assigned to the inquiry will include the scanned documents on the collaboration history sheet (CHS).

Within sixty (60) days, the SME will review the revocation request to determine whether it should be approved or denied.

The SME will review the IDRS research provided by GHW WLS, including but not limited to INOLES, AMDISA, CFINK, BMFOLI, and BMFOLT.

If the partnership is under examination (see BMFOLI, BMFOLT, and/or AMDISA), the SME will collaborate with the PTE frontline manager (FLM) to determine whether the revocation request determination would impact the examination or vice versa.

In making the determination, the SME at a minimum will:

The SME will include the yK1 graph, IDRS research received, and other pertinent document in the CHS.

The SME will prepare (but not execute) Letter 6297, Section 754 Revocation Request Determination, using the appropriate selectable paragraphs for approval or denial of the request.

The revocation request, Letter 6297, and other pertinent information are provided to the PTE FLM for review and concurrence.

Denied revocation requests must be reviewed by IRS counsel until further notice.

Approved revocation requests do not require IRS counsel review. See procedures in IRM 4.31.11.2.2.5, Determination Letter Signatures (Letter 6297).

Letter 6297 is only executed after the IRS counsel review is complete (if applicable under IRM 4.31.11.2.2.4, Counsel Review).

The PTE FLM executes Letter 6297 on behalf of the PTE director for all approved revocation requests. See IRM 1.2.63.2.15, Delegation Order LB&I 1-23-16.

The PTE program manager (or senior manager) executes the determination letter on behalf of the PTE director for all denied revocation requests.

The executed Letter 6297 will be provided to the SME and included in the CHS.

The SME completes Form 3870, Request for Adjustment, to obtain a document locator number (DLN). See Exhibit 4.31.11-2, Form 3870, Request for Adjustment, for example.

The PTE FLM approves Form 3870.

The SME will email the approved Form 3870 to the *LB&I Revocation Document Retention mailbox along with a copy of the executed Letter 6297. The SME will also provide instructions to update the 754 indicator, either “2” (approved) or “3” (denied) with the year the revocation is effective.

GHW WLS processes Form 3870 and obtains the DLN. See Exhibit 4.31.11-3, Transaction Code (TC) 290 input for 754 Revocation Requests.

GHW WLS will input TC 971 with AC 754 on the partnership’s entity profile using IDRS CC REQ77/FM77. The 754 indicator on the entity will be updated from “1” (received) to either “2” (approved) or “3” (denied) based on the email received from the SME. The “754 Year” field should update automatically based on the code input. GHW WLS will respond to the email confirming the indicator was updated as instructed.

Once the DLN is obtained, GHW WLS will route the original documents and the copy of the executed Letter 6297 to Files to be associated with the partnership’s last filed return. Mail to:

The SME coordinates mailing the executed Letter 6297 to the partnership through the PTE group secretary.

The SME completes the request tracker close out procedures.

The SME includes all documents and the executed Letter 6297 in the CHS on the PTE SharePoint.

See procedures in IRM 4.31.11.2.4, LB&I and SB/SE Examiner Responsibility and Subsequent 754 Elections.

GHW WLS submits the request received, by secure email, to SB/SE HQ partnership analysts at *SB/SE HQPship Inquiry along with IDRS research, including but not limited to INOLES, AMDISA, CFINK, BMFOLI, and BMFOLT.

GHW WLS retains the original documents until the approved Form 3870, Request for Adjustment, is received as part of the procedures.

An HQ analyst will assign the inquiry to a senior flow-through specialist (SFTS). The HQ analyst will coordinate with SB/SE division counsel points of contact (POCs) to co-assign the inquiry to a partnership cadre attorney from local counsel (cadre attorney). The cadre attorney will be assigned within seven (7) days of receipt via email.

Within seven (7) days of co-assignment, the SFTS and the cadre attorney will start the review of the IRC section 754 revocation request.

If the partnership is under examination (see BMFOLI, BMFOLT, and/or AMDISA), the SFTS will collaborate with the examination team manager to determine whether the revocation request determination would impact the examination or vice versa.

Within ninety (90) days (unless the SFTS determines the partnership needs to be opened for examination), the SFTS along with the co-assigned cadre attorney will review the revocation request to determine whether it should be approved or denied. In making the determination, the SFTS at a minimum will:

The SFTS will prepare (but not execute) Letter 6297, Section 754 Revocation Request Determination, using the appropriate selectable paragraphs for approval or denial of the request.

The revocation request, Letter 6297, and other pertinent information are provided to the co-assigned cadre attorney for review and concurrence.

If the cadre attorney concurs with the determination made, the revocation request, the unsigned Letter 6297, and other pertinent information are forwarded to SB/SE division counsel POCs for review.

Letter 6297 is only executed after SB/SE division counsel coordination is complete.

The SFTS will send, by secure email, the revocation request, three (3) copies of the Letter 6297, and other pertinent information to the SFTS’s local Technical Services to execute Letter 6297.

A Technical Services group manager will sign all three (3) copies of Letter 6297. See IRM 1.2.65.4.23, SBSE 1-23-43, Revocation of Election to Adjust Basis of Partnership Property Under IRC Section 754 and IRM 1.2.2.2.20, Delegation Order 1-23 (formerly DO-193, Rev. 6), Authorization to Perform Functions of the Commissioner.

Technical Services will overnight mail (or electronically transmit, if allowed under applicable procedural guidance) two (2) of the executed Letters 6297 to the SFTS and retain the third executed Letter 6297 for their records. For established document retention policies see IRM 1.15.2.6, Where can I find the Records Control Schedules (RCS) and Document 12990 for the RCS for determination letters.

The SFTS completes Form 3870, Request for Adjustment, to obtain a document locator number (DLN). See Exhibit 4.31.11-2 for a sample Form 3870.

Form 3870 is approved by the SFTS group manager.

The SFTS emails the approved Form 3870 to the *LB&I 754 Revocation Document Retention mailbox along with a copy of the executed Letter 6297. The SFTS will also provide instructions to update the 754 indicator, either “2” (approved) or “3” (denied) with the year the revocation is effective.

GHW WLS will process the Form 3870 and obtain the DLN. See Exhibit 4.31.11-3, Transaction Code (TC) 290 input for 754 Revocation Requests.

GHW WLS will input TC 971 with AC 754 on the partnership’s entity profile using IDRS CC REQ77/FM77. The 754 indicator on the entity will be updated from “1” (received) to either “2” (approved) or “3” (denied) based on the email received from the SFTS. The “754 Year” field should update automatically based on the code input. GHW WLS will respond to the email confirming that the indicator was updated as instructed.

Once the DLN is obtained, GHW WLS will route the original documents and the copy of the executed Letter 6297 to files to be associated with the partnership’s last filed return:

The SFTS will mail the executed Letter 6297 to the partnership.

The SFTS will electronically file the IRC 754 revocation package including all documents and letters in the IRC 754 revocation folder on the SB/SE EQTS SharePoint site.

See procedures in IRM 4.31.11.2.4, LB&I and SB/SE Examiner Responsibility and Subsequent 754 Elections.