Corporation may replace invalid IC-DISC election

Plain-English summary

A domestic corporation was formed to operate as an interest charge domestic international sales corporation. It timely filed Form 4876-A and later filed IC-DISC returns, but the IRS found that the election form was invalid because some sections were completed incorrectly. The IRS granted 60 days to file a corrected Form 4876-A and treated the replacement election as timely for the corporation's first tax year. The ruling addressed the election deadline only and did not determine whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: May the corporation replace its invalid Form 4876-A and preserve IC-DISC status from its first tax year?
• Outcome: Approved
• Key authorities: IRC § 992(b)(1); Temp. Treas. Reg. § 1.921-1T(b)(1); Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201552003
Third Party Communication: None
Release Date: 12/24/2015
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:
In re: ----------------------------------------------------- CC:INTL:B06
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PLR-110688-15
Date:
September 18, 2015

TY:--------------

LEGEND

Taxpayer = ---------------------------------------------------------------------------------
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Accounting Firm 1 = -------------------------
Accounting Firm 2 = ---------------
Individual 1 = ------------------------
Individual 2 = ------------------------
Company = ---------------------------------------
Date 1 = ----------------------
Date 2 = ---------------------------
Month = ---------------------

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

This responds to a letter dated February 18, 2015, supplemented by a letter dated September 9, 2015, submitted by Accounting Firm 1 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 1 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-110688-15
2

FACTS

Taxpayer is a domestic corporation owned by Individual 1 and Individual 2. Taxpayer was formed for the purpose of qualifying and operating as an interest charge domestic international sales corporation (“IC-DISC”). Taxpayer operates under a commission arrangement with Company, which is also owned by Individual 1 and Individual 2.

Taxpayer was formed on Date 1 and intended to be treated as an IC-DISC starting from its formation. In Month, Taxpayer prepared and timely filed Form 4876-A with the assistance of Accounting Firm 2. Believing all the requirements to conduct business and be treated as an IC-DISC for its first taxable year were satisfied, Taxpayer began acting as an IC-DISC as of its date of formation and timely filed Form 1120-IC-DISC for Taxpayer’s first and second taxable years. Taxpayer received correspondence from the Service dated Date 2 that Taxpayer was ineligible to file Form 1120-IC-DISC because Taxpayer’s election to be treated as an IC-DISC was invalid. The Service subsequently informed Taxpayer that its election was invalid because certain sections of Taxpayer’s Form 4876-A were not completed correctly.

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) 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.

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 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.

1
As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-110688-15
3

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 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-110688-15
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,

_______
Robert Z. Kelley
Acting Assistant to the Branch Chief, Branch 6 Office of Associate Chief Counsel (International)

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

cc: