Corporation gets extra time to elect IC-DISC status

Plain-English summary

A corporation was formed to operate as an interest charge domestic international sales corporation and relied on an accounting firm to prepare its Form 4876-A election. The firm mailed the completed form to the taxpayer for signature and filing, but the mailing never arrived, and the firm mistakenly believed the election had been filed. The problem surfaced when the IRS could not process the corporation's first Form 1120-IC-DISC. The IRS found that the regulatory-relief standards were satisfied and gave the corporation 60 days to file Form 4876-A, treating it as timely for the first taxable year. The ruling did not decide whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: Could the corporation receive extra time to file the election for IC-DISC treatment for its first taxable year?
• Outcome: Approved, with 60 days to file Form 4876-A.
• Key authorities: IRC § 992(b)(1); Temp. Treas. Reg. § 1.921-1T(b)(1); Treas. Reg. §§ 301.9100-1 and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201635003                                              Third Party Communication: None
Release Date: 8/26/2016                                        Date of Communication: Not Applicable
Index Number: 9100.22-00, 992.02-00
                                                               Person To Contact:
------------------------                                       -----------------, ID No. -----------------
--------------------------------------                         Telephone Number:
--------------------------                                     --------------------
-------------------------------------------                    Refer Reply To:
                                                               CC:INTL:B06
                                                               PLR-138490-15
                                                               Date:
                                                               May 26, 2016

Legend

Taxpayer =                 --------------------------------------------------
Shareholder =              ---------------------------

Individual A =             -------------------------
Individual B =             -------------------------

Law Firm =        ----------------------------------------
Accounting Firm = ----------------------

Date 1 =                   -------------------
Date 2 =                   ------------------
Date 3 =                   -------------------------

Dear ---------------:

This responds to a letter dated November 20, 2015, supplemented by a letter dated
April 26, 2016, submitted by Accounting Firm requesting that the Internal Revenue
Service (“Service”) grant Taxpayer an extension of time under Treas. Reg. §§
301.9100-1 and 301.9100-3 to file Form 4876-A (“Election To Be Treated as an Interest
Charge DISC”) for Taxpayer’s first taxable year.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and Accounting Firm and accompanied by a penalty of perjury
statement executed by Individual A. This office has not verified any of the information
submitted in support of the request for ruling. It is subject to verification on examination.

PLR-138490-15                                         2

                                                 FACTS

Taxpayer is a domestic corporation wholly owned by Shareholder, an S corporation.
Taxpayer was formed on Date 1 to serve as an interest charge domestic international
sales corporation (“IC-DISC”). Taxpayer operates under a commission arrangement
with Shareholder.

Individuals A and B own Shareholder, each through their own limited liability company
that is disregarded as an entity separate from its owner for federal tax purposes.

Shortly before Date 1, Shareholder and Individuals A and B decided to establish an IC-
DISC. They engaged Law Firm to organize Taxpayer as a corporation. They engaged
and relied on Accounting Firm to prepare the necessary election, that is, Form 4876-A,
to qualify Taxpayer as an IC-DISC. Law Firm incorporated Taxpayer on Date 1. Upon
formation, Taxpayer operated as an IC-DISC.

On Date 2, about a month later, Accounting Firm prepared Form 4876-A to take effect
as of Date 1, and mailed it to Taxpayer with instructions to sign it and file it promptly
with the Service. This correspondence never reached Taxpayer. Consequently, the
form was not filed with the Service. Mistakenly believing that the form had simply been
received and filed, Accounting Firm did not contact Taxpayer about it again.

The next year, on or around Date 3, Taxpayer’s first federal income tax return was
timely filed using Form 1120-IC-DISC. Shortly after filing the return, Taxpayer received
a letter from the Service stating that the return could not be processed because there
was no record of Taxpayer having filed Form 4876-A. Having thus learned of a
problem, Taxpayer contacted Accounting Firm, and the earlier miscommunication was
discovered.

Upon Accounting Firm’s advice and with its assistance, Taxpayer requested a ruling
granting an extension of time to file Form 4876-A for its first taxable year, in order to be
treated as an IC-DISC beginning on Date 1.

                                        LAW AND ANALYSIS

Section 992(b)(1)(A) of the Internal Revenue Code (the “Code”) provides that an
election by a corporation to be treated as a DISC1 shall be made by such corporation for
a taxable year at any time during the 90-day period immediately preceding the
beginning of the taxable year, except that the Secretary may give his consent to the
making of an election at such other times as he may designate.

1
    As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.

PLR-138490-15                                 3

Section 992(b)(1)(B) of the Code provides that such election shall be made in such
manner as the Secretary shall prescribe and shall be valid only if all persons who are
shareholders in such corporation on such first day of the first taxable year for which
such election is effective consent to such election.

Temporary Treasury Regulation § 1.921-1T(b)(1) provides, in part, that a corporation
electing IC-DISC status must file Form 4876-A and that a corporation electing to be
treated as an IC-DISC for its first taxable year shall make its election within 90 days
after the beginning of that year.

Treasury Regulation § 301.9100-1(c) provides, in part, that the Commissioner, in
exercising the Commissioner’s discretion, may grant a reasonable extension of time
under the rules set forth in Treas. Reg. §§ 301.9100-2 and 301.9100-3 to make a
regulatory election under all subtitles of the Code except subtitles E, G, H, and I.

Treasury Regulation § 301.9100-1(b) provides that a regulatory election is an election
whose due date is prescribed by a regulation published in the Federal Register, or a
revenue ruling, revenue procedure, notice, or announcement published in the Internal
Revenue Bulletin. For this purpose, an election includes an application for relief in
respect of tax.

Treasury Regulation § 301.9100-3(a) provides that requests for extensions of time for
regulatory elections that do not meet the requirements of Treas. Reg. § 301.9100-2
(automatic extensions) must be made under the rules of Treas. Reg. § 301.9100-3.
Requests for relief subject to Treas. Reg. § 301.9100-3 will be granted when the
taxpayer provides the evidence (including affidavits described in Treas. Reg.
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and that the grant of relief will not prejudice the
interests of the Government.

Based on the facts and representations submitted with Taxpayer’s ruling request, we
conclude that Taxpayer satisfies Treas. Reg. § 301.9100-3(a). Accordingly, Taxpayer is
granted an extension of time of 60 days from the date of this ruling letter to file Form
4876-A. Such filing will be treated as a timely election to be treated as an IC-DISC for
Taxpayer’s first taxable year.

The granting of an extension in this ruling letter is not a determination that Taxpayer is
otherwise eligible to make the election or to claim IC-DISC status or benefits. See
Treas. Reg. § 301.9100-1(a). Taxpayer should attach a copy of this ruling letter to its
Federal income tax return for the taxable years to which this letter applies.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent. Except as expressly provided

PLR-138490-15                                    4

herein, no opinion is expressed or implied concerning the tax consequences of any
aspect of any transaction or item discussed or referenced in this letter.

Pursuant to a Power of Attorney on file in this office, a copy of this ruling letter is being
furnished to your authorized representative.

                                    Sincerely,


                                    _________________________
                                    Marissa Rensen
                                    Senior Counsel
                                    Office of Associate Chief Counsel (International)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes