Newly formed export corporation receives 60 days to correct its IC-DISC election

Plain-English summary

A domestic corporation was formed late in a calendar year to operate as an IC-DISC for a related agricultural-equipment exporter. Its law firm filed Form 4876-A using the corporation's first full calendar year as the requested effective date, even though the corporation had been formed shortly before that date and the filing rules differ for new and existing corporations. The company intended to operate only as an IC-DISC and sought no advantage from the mistaken effective date. The IRS found that it met the reasonable, good-faith standard and granted 60 days to file a corrected election effective for its first tax year. The IRS did not rule that the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: May the newly formed export corporation correct and late-file its IC-DISC election for its first tax year?
• Outcome: approved
• Key authorities: IRC § 992(b)(1); Temp. Treas. Reg. § 1.921-1T(b)(1); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201809001 Third Party Communication: None
Release Date: 3/2/2018 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-116449-17
Date:
November 13, 2017

Legend

Taxpayer = -------------------------------------
Opco = -----------------------------------------
Individual = ------------------------
Law Firm = ----------------------------------------------------------
Date 1 = ---------------------------
Date 2 = ----------------------
Date 3 = ------------------------

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

This responds to your letter dated March 27, 2017, supplemented by the letter
submitted by Law Firm on behalf of Taxpayer dated October 11, 2017, 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 its representatives 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.

                                                 FACTS

Taxpayer is a domestic corporation wholly owned by Opco that operates in connection
with the export of agricultural implements manufactured by Opco. Opco is a limited
partnership that is classified as a partnership for Federal tax purposes. Opco is in turn
owned by Individual and by trusts for the benefit of Individual and his family, who are all
PLR-116449-17 2

U.S. citizens and residents, directly and through two S corporations. Individual has
been the CEO of Taxpayer throughout its existence and also the CEO of Opco for
several years. Taxpayer’s tax year is the calendar year.

Shortly before Date 1, Opco consulted with Law Firm about benefits that an IC-DISC
may provide. Law Firm discussed requirements and technicalities of IC-DISCs with
Opco. Opco engaged Law Firm to set up Taxpayer as an IC-DISC and prepare initial
corporate and tax filings. Taxpayer was incorporated late in December, on Date 1.
Taxpayer began operations the following year.

With the assistance of Law Firm, Taxpayer filed Form 4876-A, Election to be Treated as
an Interest Charge DISC. Due to an error of Law Firm, the entries on the form stated
that Taxpayer began doing business the day after Date 1 but requested that the election
be effective as of Date 2, January 1 of its first full year. The form was dated as of Date
3, about two weeks after Date 2.

Later in the year of Date 2, the Service notified Taxpayer that the election was untimely.
The Service notice letter noted that the due dates for Form 4876-A are different for
existing and new corporations.

Taxpayer intended to be classified and to operate solely as an IC-DISC at all times. No
opportunity or advantage was sought by initially requesting that the election be effective
as of Date 2 rather than Date 1. Taxpayer consulted with Law Firm and requested a
ruling granting an extension of time to file Form 4876-A effective as of 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.

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

1
As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-116449-17 3

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 returns 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.
PLR-116449-17 4

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: