PLR 201336013: IRS grants more time to elect IC-DISC status

Plain-English summary

A domestic corporation intended to be treated as an interest charge domestic international sales corporation, or IC-DISC, from its first taxable year. Its advisers prepared the required Form 4876-A, but the form was not filed within the required 90-day period because of misunderstandings and insufficient follow-up. The IRS found that the taxpayer acted reasonably and in good faith and granted 60 days from the ruling date to file the form. The filing will be treated as a timely IC-DISC election for the first taxable year, but the ruling did not determine whether the taxpayer otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: May the taxpayer file Form 4876-A late and have the filing treated as a timely IC-DISC election?
• Outcome: Approved, with a 60-day extension from the ruling date.
• Key authorities: IRC § 992(b)(1); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Temp. Treas. Reg. § 1.921-1T.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201336013
Third Party Communication: None
Release Date: 9/6/2013
Date of Communication: Not Applicable
Index Number: 9100.22-00, 992.02-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:INTL:BR6
PLR-150468-12
Date:
In Re: ----------------------------------------------- May 07, 2013
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LEGEND

Taxpayer = -----------------------------------------------------
Parent = ---------------------------
Accounting Firm = ---------------
Consulting Firm = --------------------
Individual = -----------------------
Controller = --------------------------
Date 1 = ------------------------
Date 2 = ----------------------
Date 3 = ------------------------
Date 4 = ------------------------
Date 5 = ------------------

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

This responds to a letter dated November 14, 2012, submitted on behalf of Taxpayer, 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 given in this letter are based on facts and representations submitted by Taxpayer, Accounting Firm, Consulting Firm, and Controller, and accompanied by 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. Verification of the factual information, representations, and other data may be required as part of the audit process.
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FACTS

Taxpayer is a domestic corporation wholly owned by Parent, an S-corporation. Individual is President of Taxpayer and Parent. Accounting Firm is an accounting, advisory, technology and managed services firm. On Date 1, Accounting Firm advised Individual of the benefits associated with interest charge domestic international sales corporations (“IC-DISCs”). Subsequent to these discussions, Accounting Firm engaged Consulting Firm, a third party consultant on whom Accounting Firm relies for international tax support, to assist Parent in establishing an IC-DISC.

Taxpayer was incorporated on Date 2 and was intended to be treated as an IC-DISC from inception. On Date 3, Consulting Firm sent to Controller, an officer of Parent, a package of documentation which contained the incorporation documents for Taxpayer, various other legal documents and agreements pertaining to Taxpayer’s activities and complete copies of Form 4876-A with filing instructions. On Date 4, the legal documents related to the incorporation of Taxpayer were signed by Taxpayer’s sole director. Due to the lapse of time between the arrival of the package of documentation from Consulting Firm and the signing of the corporate documents, an unfamiliarity with the various documents, and a lack of continuous follow up by Accounting Firm and Consulting Firm, Controller believed that Form 4876-A had been submitted to the Service. Believing all the requirements to conduct business and to be treated as an IC-DISC for its first taxable year were satisfied, Taxpayer began operating as an IC-DISC as of Date 2.

Even though Taxpayer had assumed that all the necessary requirements to conduct business as an IC-DISC were satisfied, it did not qualify as an IC-DISC for federal income tax purposes because it did not timely file a Form 4876-A with the Service within 90 days of Date 2. Taxpayer represents that it did not realize this error until receiving a letter from the Service dated Date 5 stating that there was no record of Form 4876-A being filed by Taxpayer. Upon discovery that the form had not been filed, 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 (“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.
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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.

Temp. Treas. Reg. § 1.921-1T(b)(1) provides, in part, that a corporation electing IC-DISC status must file Form 4876-A. A corporation electing to be treated as an IC-DISC for its first taxable year must make the 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 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 the grant of relief will not prejudice the interests of the Government.

The election described in the third sentence of 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, 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). A copy of this letter ruling should be filed with the Form 4876-A.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Code provides that written determinations may not be used or cited as precedent.
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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 representative.

Sincerely,

Joseph L. Tobin
Senior Counsel, Branch 6
Office of Associate Chief Counsel (International)

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

cc: