Corporation receives relief for a late IC-DISC election

Plain-English summary

A domestic corporation was formed to operate as an interest charge domestic international sales corporation. Its accounting firm and law firm each mistakenly believed the other would file Form 4876-A, so the election was missed. The accounting firm discovered the omission before the corporation's first tax return was due. The IRS concluded that the corporation satisfied the discretionary-relief requirements and granted 60 days to file Form 4876-A effective for its first tax year, without deciding whether it otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: Could the corporation make a late IC-DISC election effective for its first tax year?
• Outcome: approved, with 60 days to file Form 4876-A
• Key authorities: IRC § 992(b); Temp. Treas. Reg. § 1.921-1T(b); 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: 201717015                                              Third Party Communication: None
Release Date: 4/28/2017                                        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-127281-16
                                                               Date:
                                                               January 18, 2017




In Re: ----------------------------------------------


                                                    LEGEND

Taxpayer=                  ---------------------------------------------
Company=                   ----------------------------------------
Accounting Firm=           ----------------------------------------------
Law Firm=                  ----------------------------
Year 1=                    -------
Date 1=                    -----------------------
Date 2=                    ----------------------------
Date 3=                    -------------------


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

This responds to a letter dated August 31, 2016, supplemented by a letter dated
January 10, 2017, submitted by your representatives 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 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 rulings. It is subject to verification on
examination.
PLR-127281-16                                         2


                                                 FACTS

Taxpayer is a domestic corporation that sells food products under a commission
arrangement with Company. Taxpayer is wholly-owned by Company.

In Year 1, Accounting Firm advised Company’s management of the benefits associated
with operating an interest charge domestic international sales corporation (“IC-DISC”).
Company’s management was not experienced in international tax matters or familiar
with IC-DISC matters. After deciding to form Taxpayer as an IC-DISC, Company’s
management engaged Law Firm to form Taxpayer and to ensure all appropriate
documents were identified, prepared, and executed as required by law. Company’s
management further relied on Accounting Firm and Law Firm to organize and to prepare
all documents and filings needed to establish Taxpayer as an IC-DISC. As a result,
Taxpayer was incorporated on Date 1 with the sole purpose of qualifying and operating
as an IC-DISC.

Law Firm forwarded the formation documents to Accounting Firm on Date 2 with a
statement that Law Firm expected that the filing of Form 4876-A would be completed by
Accounting Firm. However, Accounting Firm inadvertently overlooked Law Firm’s
communication regarding its expectation that Accounting Firm would prepare and file
the Form 4876-A. As a result, Accounting Firm mistakenly believed that Law Firm had
filed the Form 4876-A and the Form 4876-A was not filed.

Believing that all of the requirements to conduct business and be treated as an IC-DISC
for its first taxable year were satisfied, Taxpayer began operating as an IC-DISC on
Date 1. On Date 3, which was before Taxpayer’s tax return for its first taxable year was
due, Accounting Firm discovered that a Form 4876-A for Taxpayer had not been filed.

Upon discovery of this error, and in order to operate as an IC-DISC beginning on
Date 1, 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 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-127281-16                                 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 letter ruling to its
Federal income tax return for the taxable years to which it relates.

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-127281-16                                    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 letter is being
furnished 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: