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Without making a 754 election, the assets inside cost basis would be transferred to the new partner with no adjustment.
If the partnership decides they want the step-up they must make the 754 election. It must be made before the due date of the income tax return, including extensions, for the year that the transfer occurs. The partnership needs to attach the corresponding (signed) forms to the income tax return.
Section 301.91002 provides auto- matic extensions of time for making regulatory and statutory elections when the deadline for making the elec- tion is the due date of the return or the due date of the return including exten- sions.
Late Election If the partnership fails to make the election, it can file for late relief under Treasury Regulation Section 301.9100-2, which is an automatic 12-month extension for IRC Section 754 elections. If more than 12 months have passed, late relief can still be requested but must be approved by the Commissioner.
DRAWBACKS OF A 754 ELECTION Once the election is made, it is in effect for that filing year and all future years and can only be revoked with the consent of the IRS.

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(ii) Partnerships for which a section 754 election is in effect. In the case of increased basis that is treated as transition period property of a partner under paragraph (b)(8) of this section, only that partner may make the retroactive election for purposes of paragraph (c)(1)(i) of this section.