Adviser misunderstanding justified late IC-DISC election

Plain-English summary

A domestic corporation was formed to operate as an interest charge domestic international sales corporation. A misunderstanding between its accounting and law firms over who would prepare and submit Form 4876-A caused the corporation to miss the election deadline for its first taxable year. The IRS found that the corporation met the regulatory requirements for discretionary deadline relief. It gave the corporation 60 days to file the form, which would then be treated as a timely IC-DISC election for that first year. The ruling did not decide whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: Could the corporation make a late IC-DISC election after its advisers misunderstood who was responsible for filing the form?
• Outcome: Approved, with 60 days 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: 201532005 Third Party Communication: None
Release Date: 8/7/2015 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-106882-15

Date:
May 04, 2015

TY: ------
Legend

Taxpayer = -------------------
Accounting Firm = ----------------------------------
Law Firm = ----------------------------------
Company = ----------------------
Individual A = --------------------
Individual B = ----------------------------
Individual C = -----------------
Year 1 = -------
Date 1 = -----------------------
Date 2 = ---------------------

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

This responds to a letter dated January 28, 2015, submitted by 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 ruling contained in this letter is based upon information and representations
submitted by Taxpayer and Law Firm 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-106882-15 2

FACTS

Taxpayer is a domestic corporation wholly owned by Individuals A, B, and C.
Taxpayer was formed on Date 1 for the sole purpose of operating as an interest charge
domestic international sales corporation (“IC-DISC”). Taxpayer operates under a
commission arrangement with Company. Individuals A, B, and C also own all of the
outstanding stock of Company.

In Year 1, Individuals A, B, and C consulted with Accounting Firm and decided to
establish an IC-DISC. Individuals A, B, and C engaged Law Firm to complete the
necessary organizational documents. Taxpayer began operating as an IC-DISC on
Date 1. However, due to a misunderstanding between Accounting Firm and Law Firm
regarding the responsibility for preparing and submitting Form 4876-A, Taxpayer did not
timely file its election to qualify as an IC-DISC for its first taxable year. Taxpayer did not
realize this error until Date 2, when Accounting Firm discovered that Taxpayer’s Form
4876-A had not been filed.

In order to operate as an IC-DISC beginning on Date 1, 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 (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
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
1
As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-106882-15 3

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
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, 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 ruling
letter is being sent to your authorized representative.

Sincerely,

Joseph P. Dewald
Senior Technical Reviewer, Branch 6
Office of Associate Chief Counsel (International)

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

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