IC-DISC election extension granted, but capitalization defect remains

Plain-English summary

A corporation formed to operate as an IC-DISC missed its election deadline after personnel changes disrupted tracking and its management firm sent Form 4876-A to an incorrect ZIP code. The IRS found that the corporation satisfied the regulatory-relief standards and granted 60 days to file the election as timely for its first taxable year. The extension did not establish eligibility for IC-DISC treatment. The IRS specifically noted that the submitted facts indicated the corporation failed the first-year capitalization requirement under section 992(a)(1)(C).

Ruling snapshot

• Question: May the corporation file a late IC-DISC election, and does that relief establish first-year qualification?
• Outcome: Mixed
• Key authorities: IRC § 992(a)(1)(C), (b)(1); Temp. Treas. Reg. § 1.921-1T(b)(1); Treas. Reg. §§ 1.992-1(d)(1), 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201536001 Third Party Communication: None
Release Date: 9/4/2015 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-103688-15
Date:
June 05, 2015

                                                           TY: ------

Legend

Taxpayer = --------------------------
Management Firm = -----------------------------------------
Company = -------------------------------------------------------
Individual A = -----------------------
Individual B = ------------------------
Individual C = ------------------
Individual D = -----------
Corporation A = -------------------------------
Corporation B = -------------------
Corporation C = -----------------------------
Partnership A = -------------------
Partnership B = -----------------------
Partnership C = ------------------------------
Month 1 = ------------
Month 2 = ---------------------
Date 1 = -------------------
Date 2 = --------------------------
Date 3 = --------------------------
Date 4 = -------------

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

This responds to a letter dated January 27, 2015, submitted by Taxpayer requesting
that the Internal Revenue Service (“Service”) grant Taxpayer an extension of time under
PLR-103688-15 2

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 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.

                                             FACTS

Taxpayer is a domestic corporation wholly owned by Individuals A, B, C, and D,
Corporations A, B, and C, and Partnerships A, B, and C. Taxpayer was incorporated on
Date 1 for the purpose of operating as an interest charge domestic international sales
corporation (“IC-DISC”). Individuals A, B, and C, Corporations A, B, and C, and
Partnerships A, B, and C own the majority of the outstanding stock of Company,
Taxpayer’s related supplier.

Prior to Date 1, Company consulted with Management Firm for assistance with
incorporation and establishment of an IC-DISC. In Month 1, the Management Firm
employee who serviced Taxpayer’s account was terminated and, around the same time,
a key Management Firm staff member retired. As a result of these personnel changes,
the IC-DISC election deadline did not get properly entered into Management Firm’s
tracking system after Taxpayer’s incorporation on Date 1.

Between Date 1 and Month 2, Company considered potential ownership structures for
Taxpayer. In Month 2, Company settled on an ownership structure for Taxpayer and
engaged Management Firm to prepare the necessary organizational documents,
including Form 4876-A. On Date 2, Taxpayer’s shareholders made their respective
capital contributions to Taxpayer.

On Date 3, Management Firm received the signed organizational documents, including
Form 4876-A. On the same day, Management Firm submitted the signed Form 4876-A
to the Service by Federal Express with an incorrect zip code for the IRS Service Center.
On Date 4, the Service notified Taxpayer that Taxpayer’s Form 4876-A had not been
timely 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

1
As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-103688-15 3

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.

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.

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.

Section 992(a)(1)(C) provides that the term “DISC” means, with respect to any taxable
year, a corporation that is incorporated under the laws of any state and satisfies a
number of conditions, including that such corporation does not have more than one
class of stock, and that the par or stated value of its outstanding stock is at least $2,500
on each day of the taxable year.

Treas. Reg. § 1.992-1(d)(1) provides that, in the case of a corporation which elects
to be treated as a DISC for its first taxable year, the capitalization requirement of section
992(a)(1)(C) is satisfied for that year if the corporation has no more than one class of
stock at any time during the year and the par value (or, in the case of stock without par
value, the stated value) of the corporation’s outstanding stock is at least $2,500 on the
last day of the period within which the election must be made and on each succeeding
day of the 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
PLR-103688-15 4

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). The facts provided in the letter submitted by Taxpayer
dated January 27, 2015, indicate that Taxpayer failed to qualify as an IC-DISC for its
first taxable year because Taxpayer did not satisfy the capitalization requirement under
section 992(a)(1)(C) and Treas. Reg. § 1.992-1(d)(1).

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,


                               _____________________________________
                               Angela E. Holland
                               Assistant to the Branch Chief, Branch 6
                               Office of Associate Chief Counsel (International)

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

cc: