Corporation receives more time to elect IC-DISC status

Plain-English summary

A foreign owner formed a domestic corporation to operate as an interest charge domestic international sales corporation for products made by affiliated U.S. companies. The corporation relied on its attorney to file Form 4876-A, but the attorney inadvertently missed the 90-day deadline for the corporation's first tax year. The IRS found that the requirements for regulatory election relief were satisfied and granted 60 days to file the form. The ruling treated the election as timely but did not determine whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201638008                                              Third Party Communication: None
Release Date: 9/16/2016                                        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-105590-16
                                                               Date:
                                                               June 20, 2016




                                                               TY: -------------------
Legend

Taxpayer =                          -----------------------------
Attorney =                          -------------------------
Foreign Owner =                     -----------
Country A =                         ---------
Company =                           ---------------------------------------------------------------
Affiliates =                        ------------------------------------------------------------
                                    -------------------------
                                    -------------------------------------------------------
Month 1 =                           --------------
Date 1 =                            ------------------
Year 1 =                            -----------------------------------------------


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

This responds to a letter dated February 12, 2016, as supplemented by a letter dated
April 25, 2016, submitted by your representative 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 Year 1, Taxpayer’s first taxable year.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by affidavits and penalty of perjury statements
executed by appropriate parties. This office has not verified any of the materials
submitted in support of the request for a ruling. It is subject to verification on
examination.
PLR-105590-16                                         2

                                                 FACTS

Taxpayer and Company are domestic corporations wholly-owned by Foreign Owner, a
foreign entity organized in Country A. Affiliates are members of a consolidated group of
domestic corporations for which Company is the common parent. Taxpayer was
formed to serve as an interest charge domestic international sales corporation (“IC-
DISC”) and sell products manufactured by Company and Affiliates on a commission
basis.

In Month 1, Foreign Owner decided to establish an IC-DISC and engaged Attorney to
complete the necessary organizational documents. On Date 1, Taxpayer was
incorporated with Attorney’s assistance. Taxpayer relied on Attorney to timely make the
necessary elections to qualify Taxpayer as an IC-DISC for Year 1. Due to an
inadvertent oversight by Attorney, the Form 4876-A was not filed within 90 days after
Date 1.

After Attorney discovered later in Year 1 that Form 4876-A had not been timely filed,
Attorney advised Taxpayer that the best course of action to remedy the situation was to
seek a private letter ruling granting an extension of time to file Form 4876-A for Year 1,
its first taxable year.

Taxpayer represents that the extension does not prejudice the Government’s interests
and that Taxpayer is not placed in a better position by making the election at this time
than it would have been in had the election been timely made.

As noted above, Taxpayer requested a ruling granting an extension of time to file Form
4876-A for its first taxable year.

                                        LAW AND ANALYSIS

Section 992(b)(1)(A) of the Internal Revenue Code1 provides that an election by a
corporation to be treated as a DISC2 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.

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.



1
    All section references are to the Internal Revenue Code.
2
    As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-105590-16                                 3

Section 992(b)(1)(B) 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.

Section 992(a)(1) provides that the term “DISC” means, with respect to any taxable
year, a corporation that is incorporated under the laws of any state and satisfies a
number of conditions, including that such corporation does not have more than one
class of stock, and that the par or stated value of its outstanding stock is at least $2,500
on each day of the taxable year.

Section 996(g) provides that, in the case of a shareholder who is a nonresident alien
individual or a foreign corporation, trust, or estate, gains referred to in section 995(c)
and all distributions out of accumulated DISC income including deemed distributions
shall be treated as gains and distributions derived from sources within the United States
that are effectively connected with the conduct of a trade or business in the United
States, and if the shareholder is entitled to treaty benefits under a treaty, treated as
conducted through a permanent establishment of such shareholder within the United
States.

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
PLR-105590-16                                   4

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). All distributions made to Foreign Owner out of
accumulated DISC income including deemed distributions shall be treated as gains and
distributions which are effectively connected with the conduct of a trade or business
conducted through a permanent establishment of the Foreign Owner in the United
States.

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
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.

In accordance with the Power of Attorney on file with this office, a copy of this ruling
letter is being sent to your authorized representative.

                                   Sincerely,


                                   _____________________________________
                                   Marissa K. Rensen
                                   Senior Counsel, Branch 6
                                   Office of Associate Chief Counsel (International)

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

cc: