Corporation receives late IC-DISC election relief

Plain-English summary

A domestic corporation was formed to operate as an interest charge DISC and hired an accounting firm to prepare Form 4876-A. The firm prepared the form, but the corporation failed to file it because of an administrative oversight and later filed its first IC-DISC return believing the election was in place. The IRS concluded that the corporation met the standards for regulatory-election relief and granted 60 days to file Form 4876-A. The ruling treated that filing as timely but did not determine whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: May the corporation file Form 4876-A late to elect IC-DISC status for its first tax year?
• Outcome: approved; a 60-day extension was granted
• Key authorities: IRC § 992(b)(1); Temp. Treas. Reg. § 1.921-1T; Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201701003
Third Party Communication: None
Release Date: 1/6/2017
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:
CC:INTL:B06
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In re: ----------------------------------------- Date:
October 6, 2016

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LEGEND

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

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

This responds to correspondence dated March 15, 2016, September 7, 2016 and October 3, 2016, 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. They are subject to verification on examination.

FACTS

Taxpayer is a domestic corporation that was formed for the purpose of qualifying and operating as an interest charge domestic international sales corporation (“IC-
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DISC”). Taxpayer was incorporated on Date 1 and has a commission arrangement with Company. Both Taxpayer and Company are owned in the same proportion by a group of individuals and entities. After formation, Taxpayer engaged Accounting Firm to prepare the necessary election to qualify Taxpayer as an IC-DISC. Accounting Firm prepared Form 4876-A, and provided the form to Taxpayer for execution and filing by the due date. However, Taxpayer failed to file Form 4876-A due to an administrative oversight.

Taxpayer and Company are owner-managed and do not possess a significant administrative function. In addition, they rarely make tax election filings with the Service, and did not have a system established to ensure timely filing of tax forms.

Taxpayer and Accounting Firm were unaware that Taxpayer had failed to timely file Form 4876-A. Taxpayer filed Form 1120-IC-DISC for Taxpayer’s first taxable year ending on Date 2. After doing so, Taxpayer received correspondence from the Service indicating that Taxpayer was ineligible to file Form 1120-IC-DISC because Taxpayer had not filed Form 4876-A.

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.

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.
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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 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, this letter does not express or imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.
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Pursuant to a Power of Attorney on file in this office, a copy of this ruling letter is being furnished to your authorized representative.

Sincerely,

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

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

cc: