Corporation received 60 days to file late IC-DISC election

Plain-English summary

A domestic corporation was formed to operate as an interest charge domestic international sales corporation and entered a commission arrangement with a related company. Its law firm organized the entity but expected an accounting firm to file Form 4876-A, and the missing election was not discovered until the first IC-DISC return was prepared. The corporation had otherwise operated consistently with intended IC-DISC status. The IRS found that the discretionary late-election standards were met and gave the corporation 60 days to file Form 4876-A for its first taxable year.

Ruling snapshot

• Question: May the corporation make a late election to be treated as an IC-DISC for its first taxable year?
• Outcome: approved, with 60 days from the ruling date 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: 201940003                                              Third Party Communication: None
Release Date: 10/4/2019                                        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-103690-19
                                                               Date:
                                                               July 2, 2019


                  TY:------


Legend

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


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

This responds to correspondence dated February 26, 2019 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. Additional information was submitted
in a letter dated June 10, 2019.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and Accounting Firm 1, 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-103690-19                                       2

                                                FACTS

Taxpayer is a domestic corporation with a calendar taxable year. Taxpayer was formed
on Date 1 to operate as an interest charge domestic international sales corporation (“IC-
DISC”) and has established a commission arrangement with Company. Both Taxpayer
and Company are owned in the same proportion by Individuals 1, 2 and 3 (the
“Shareholders”).

Taxpayer was formed as a result of discussions between the Shareholders and Law
Firm about establishing an IC-DISC to take advantage of Company’s foreign sales
activities. Law Firm had provided legal assistance to the Shareholders’ other related
businesses for many years, including organizing another IC-DISC. Similar to past
arrangements, the Shareholders retained Law Firm to organize Taxpayer as an IC-
DISC, including preparing the required corporate documents to organize Taxpayer as a
legal entity. Law Firm, however, anticipated that Accounting Firm 2 would prepare and
timely file Form 4876-A.

During the preparation of Taxpayer’s Form 1120-IC-DISC (“Interest Charge Domestic
International Sales Corporation Return”) for Year 1, Accounting Firm 2 realized that
Form 4876-A had never been filed. Accounting Firm 2 nonetheless filed Form 4876-A
with Taxpayer’s Year 1 Form 1120-IC-DISC. The Service subsequently acknowledged
receipt of Taxpayer’s Form 4876-A but declined to accept the election as timely for Year

1. Since its incorporation, Taxpayer has conducted business and complied with all
relevant rules and procedures consistent with its understanding that it was an IC-DISC.

Accounting Firm 1 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 for Year 1, Taxpayer’s
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.

Section 992(b)(1)(B) provides that the election shall be made in the manner prescribed
by the Secretary and shall be valid only if all persons who are shareholders in such
corporation on the first day of the first taxable year for which such election is effective
consent to the election.
1
  Unless specified otherwise, all section references are references to the Internal Revenue Code of 1986,
as amended.
2
  As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.

PLR-103690-19                                 3


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.

The IC-DISC election described in 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, Year 1.

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
Form 4876-A and Federal income tax return for the taxable years to which this ruling
letter applies.

PLR-103690-19                                    4

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 letter is
being sent to your authorized representatives.

                                    Sincerely,


                                    _______________________________
                                    Robert Z. Kelley
                                    Senior Counsel, Branch 6
                                    Office of Associate Chief Counsel (International)


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