Late IC-DISC election receives relief

Plain-English summary

A domestic corporation was formed solely to operate as an interest charge domestic international sales corporation and entered into a commission agreement consistent with that intent. Its chief financial officer filed Form 4876-A late after mistakenly measuring the deadline from the date active operations were organized rather than the corporation's formation. The IRS concluded that the corporation acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file Form 4876-A, which would be treated as a timely IC-DISC election for the corporation's first taxable year.

Ruling snapshot

• Question: May the corporation make a late IC-DISC election for its first taxable year?
• Outcome: Approved, with 60 days to file Form 4876-A
• Key authorities: IRC § 992(b)(1)(A); 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: 201535014
Third Party Communication: None
Release Date: 8/28/2015
Date of Communication: Not Applicable
Index Number: 9100.22-00, 992.02-00
Person To Contact:
-------------------
---------------------------, ID No. ---------------
-----------------------
----------------
--------------------
Telephone Number:
--------------------------
--------------------
In re: -------------------
Refer Reply To:
CC:INTL:B06
PLR-143942-14
Date:
May 29, 2015

------------

LEGEN D

Taxpayer = ----------------------------------------- ----------- Accounting Firm = --------------------------------------- Individual 1 =------------------------------ Individual 2 = ----------------
Company = --------------------------------
Date 1 = ----------------
Date 2 = ----------------
Date 3 = ---------------------
Date 4 = -----------------
Date 5 = ----------------

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

This responds to a letter dated November 24, 2014, supplemented by letters dated January 16, 2015 and May 27, 2015, submitted by Accounting Firm 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 Accounting Firm and accompanied by affidavits and penalties 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.

PLR-143942-14
2

FACTS

Taxpayer is a domestic corporation wholly owned by Individual 1. Taxpayer was formed for the sole purpose of qualifying and operating as an interest charge domestic international sales corporation (“IC-DISC”). Taxpayer operates under a commission arrangement with Company.

Taxpayer was formed on Date 1, and intended to be treated as an IC-DISC starting from its formation. Demonstrating this intention, Taxpayer entered into an IC-DISC commission agreement with Company on Date 2. On Date 3, Individual 2, Chief Financial Officer of Taxpayer, signed and filed a Form 4876-A on behalf of Taxpayer. Individual 2 inadvertently measured the deadline for filing the Form 4876-A from Date 4, the date on which Taxpayer was organized internally to begin active business operations. Although Individual 2 has knowledge of and experience with Federal income tax law, Individual 2 has limited knowledge of and experience with the particular procedures for making an IC-DISC election pursuant to section 992. The failure by Individual 2 to timely file Form 4876-A was not purposeful, and Individual 2 in fact believed that a timely IC-DISC election had been made.

In Date 5, while engaged in the preparation of tax documents for Taxpayer and Company, Accounting Firm discovered that Taxpayer had not made a timely IC-DISC election, and informed Individual 2 of that fact. As a result, Taxpayer has requested a ruling that grants an extension of time of 60 days from the date of the ruling letter to file Form 4876-A and that such filing will be treated as a timely election to be treated as an IC-DISC for Taxpayer’s first taxable year.

LAW AND ANALYSIS

Section 992(b)(1)(A) 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.

Temp. Treas. Reg. § 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.

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

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

PLR-143942-14
3

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 that the grant of relief will not prejudice the interests of the Government.

In the present situation, the election described in 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 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 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.

PLR-143942-14
4

Pursuant to a Power of Attorney on file in this office, copies of this ruling letter are being furnished to your authorized representatives.

Sincerely,

_______
Christopher J. Bello
Chief, Branch 6
Office of Associate Chief Counsel (International)

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