IRS grants 90 days to file a late IC-DISC election

Plain-English summary

A newly formed corporation intended to elect interest charge domestic international sales corporation status and receive export commissions from related operating entities. Its owners and advisers discussed the rule requiring Form 4876-A within 90 days after the start of the corporation's first tax year, but no one received the final assignment to prepare the form. The omission was discovered the next year when the accounting firm requested the election while preparing the corporation's first IC-DISC return. The corporation promptly sought relief, filed its return on time, and disclosed that the extension request was pending. The IRS found that the corporation met the reasonable-and-good-faith standard and granted 90 days to file Form 4876-A, which would be treated as timely for the first tax year. The ruling did not decide whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: May the corporation file a late Form 4876-A election for IC-DISC status effective for its first taxable year?
• Outcome: Approved: the corporation received 90 days to file the election.
• Key authorities: IRC §§ 992(b)(1) and 995(f); 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: 202122010 Third Party Communication: None
Release Date: 6/4/2021 Date of Communication: Not Applicable
Index Number: 992.02-00, 9100.00-00
Person To Contact:
------------------------ -----------------, ID No. -----------------
-------------------------------------------------------- Telephone Number:
------------------------ --------------------
--------------------------- Refer Reply To:
--------------------------------- CC:INTL:B06
PLR-125350-20
Date:
February 25, 2021

Legend

Taxpayer = ------------------------

Parent = -----------------------------

Corporation A = ------------------------------
Corporation B = ------------------------------------------

Individual A = -------------------------
Individual B = ----------------------
Individual C = -------------------------

Opco = ---------------

Hybrid Entity = ---------------------------------

Accounting Firm = ------------------------------------------

Date 1 = ------------------------
Date 2 = ------------------
Date 3 = ---------------------------

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

This responds to your letter dated October 30, 2020 requesting that the Internal
Revenue Service (“Service”) grant Taxpayer an extension of time under Treas. Reg. §§

PLR-125350-20 2

301.9100-1 and 301.9100-3 to file Form 4876-A (“Election To Be Treated as an Interest
Charge DISC”)1 for Taxpayer’s first taxable year.

                                             Facts

Taxpayer is a corporation owned one-half by Corporation A, with Corporation B owning
a larger minority stake and Individuals A and B owning much smaller minority stakes.

Parent is an S corporation. Parent is owned by electing small business trusts and by
grantor trusts. All of the trusts and ultimate individual beneficiaries are U.S. tax
residents. Individual A is the grantor of some of the grantor trusts, Individual B is the
grantor of others of the grantor trusts, and Individual C is the grantor of the rest of the
grantor trusts.

Corporation A is a C corporation directly owned by Parent. Corporation B is a qualified
subchapter S subsidiary directly owned by Parent.

Corporation A owns a group of entities that are disregarded as separate from
Corporation A (and thereby also from one another) for U.S. federal income tax
purposes. This group of disregarded entities manufactures and/or exports fabricated
metal products, and, pursuant to a commission agreement, pays commissions to
Taxpayer with respect to the exporting. All of these disregarded entities, including one
that is the parent of the disregarded group (which we call “Opco” for this ruling letter),
are domestic, except that Hybrid Entity is foreign and regarded as a separate tax entity
by its country of residence. Some of the products are manufactured by Opco and the
other disregarded entities; others are manufactured by third parties. Some of the
customers are related parties and others are unrelated.

Individual A is the president and a director of Opco, and also a director of each of the
other disregarded entities. Individual B is a director of Opco. Individual C is an officer
of Parent, Corporation A, and Opco, and a director of those corporations, Corporation B,
Opco, and some of the other disregarded entities.

Corporation A, Corporation B, Individual A, and Individual B engaged Accounting Firm
to provide tax planning advice, including in connection with potential use of a DISC.
These corporations and individuals also engaged legal and other financial professionals
to set up the contemplated DISC and associated arrangements. As a part of this
process, the corporations, individuals, and advisors discussed the requirement that
Form 4876-A be filed within 90 days of the beginning of a DISC’s first taxable year to be
effective from inception. However, a final step of assigning the preparation of that form
was not taken.

1 An Interest Charge Domestic International Sales Corporation (“IC-DISC”) is the type of DISC for which

the Internal Revenue Code provides for the years at issue. See I.R.C. § 995(f).

PLR-125350-20 3

On Date 1, a few months later, the corporations and individuals incorporated Taxpayer,
intending that it would elect to be treated as a DISC. An export commission agreement
among Taxpayer, Opco, and its disregarded entities, which cited the DISC regime, was
also put in place. However, the Form 4876-A was not prepared around Taxpayer’s
incorporation, and the omission went unnoticed until the due date for filing the form to
be effective as of that time had passed.

On Date 2, the next year, Accounting Firm was preparing to file Taxpayer’s initial Form
1120-IC-DISC, “Interest Charge Domestic International Sales Corporation Return,” and
requested a copy of Form 4876-A that it expected had been filed for Taxpayer. But
Taxpayer and Accounting Firm soon discovered that the form inadvertently had never
been filed.

Over the next several weeks, Taxpayer and Accounting Firm discussed the problem,
had Accounting Firm prepare the extension request that is the subject of the letter, and
filed a Form 1120-IC-DISC for Taxpayer’s first taxable year by the due date for that
form, attaching a statement that Taxpayer was seeking the extension.

                                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 DISC 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
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

PLR-125350-20 4

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.

Treasury Regulation § 301.9100-3(b)(1)(v) provides that a taxpayer is generally deemed
to have acted reasonably and in good faith if the taxpayer reasonably relied on a
qualified tax professional, including a tax professional employed by the taxpayer, and
the tax professional failed to make, or advise the taxpayer to make, the election.

                                     Conclusion

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 90 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).

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 particular, no opinion is expressed or implied as to whether the
commissions (or portions thereof) paid to Taxpayer by Opco may constitute taxable
gifts. See, e.g., Rev. Rul. 81-54, 1981-1 C.B. 476.

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.

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

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

PLR-125350-20 5

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

                                 Sincerely,



                                 Frank W. Dunham III
                                 Branch Chief
                                 (International)

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