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 and relied on an accounting firm to arrange the required election. Because of an apparent misunderstanding, neither the accounting firm nor the corporation filed Form 4876-A. After the corporation filed its first Form 1120-IC-DISC, the IRS notified it that the election form was missing. 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: 201717017                                              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:
In Re: ----------------------------                            CC:INTL:B06
                                                               PLR-128352-16
                                                               Date:
                                                               January 31, 2017

                                                               TY: -------

Legend

Taxpayer =                 ----------------------------
Law Firm =                 -----------------------------
Accounting Firm =          -----------------------------------------
Parent =                   ----------------------------
Shareholder 1 =            ------------------
Shareholder 2 =            -------------------
Shareholder 3 =            ---------------------------
Affiliate =                ----------------------------------------------
Date 1 =                   ---------------------------
Date 2 =                   ----------------------------
Date 3 =                   ---------------------------


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

This responds to a letter dated September 8, 2016, submitted by Law 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 Law Firm, and accompanied by penalties of perjury
statements executed by the appropriate parties. This office has not verified any of the
materials submitted in support of the request for rulings. They are subject to verification
on examination.
PLR-128352-16                                         2

                                                 FACTS

Taxpayer is a domestic corporation wholly owned by Parent. Parent is owned by
Shareholder 1, Shareholder 2, and Shareholder 3. Taxpayer acts under a commission
arrangement to sell machinery on behalf of Affiliate, which manufactures the machinery.
Affiliate is also owned by Shareholder 1, Shareholder 2, and Shareholder 3 in the same
proportion that these shareholders own Parent. Taxpayer was incorporated on Date 1
and was intended to be treated as an interest charge domestic international sales
corporation (“IC-DISC”). Parent relied on Accounting Firm for advice and assistance
with arranging for Taxpayer to qualify as an IC-DISC, including preparation and filing of
Form 4876-A. However, due to an apparent misunderstanding, neither Accounting Firm
nor Taxpayer filed the Form 4876-A.

On Date 2, Taxpayer’s Form 1120-IC-DISC (“Interest Charge Domestic International
Sales Corporation Return”) was filed for its taxable year ended Date 3. Taxpayer later
received correspondence from the Service stating that it had received a Form 1120-IC-
DISC for Taxpayer, but had not received a Form 4876-A for Taxpayer.

Law Firm submitted this request for relief on behalf of Taxpayer under Treas. Reg.
§ 301.9100-3 for an extension of time to file Form 4876-A.

                                        LAW AND ANALYSIS

Section 992(b)(1)(A) of the Internal Revenue Code (“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.

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.

Temp. Treas. Reg. § 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.

Treas. Reg. § 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


1
    As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-128352-16                                 3

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.

Treas. Reg. § 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.

Treas. Reg. § 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.

In the present situation, the election described in Temp. Treas. Reg. § 1.921-1T(b)(1) is
a regulatory election as defined in Treas. Reg. § 301.9100-1(b). Therefore, the
Commissioner has discretionary authority under Treas. Reg. § 301.9100-1(c) to grant
Taxpayer an extension of time, provided that Taxpayer satisfies the standards for relief
set forth in Treas. Reg. § 301.9100-3.

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
in fact 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 Form
4876-A and 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, this letter does not express or imply any opinion concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
letter.
PLR-128352-16                                    4



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


                                    Sincerely,


                                    _____________________________________
                                    Christopher J. Bello
                                    Branch Chief, Branch 6
                                    Office of Associate Chief Counsel (International)

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


cc: