Corporation receives more time to elect IC-DISC status

Plain-English summary

A corporation was formed to operate as an interest charge domestic international sales corporation and hired an accounting firm to prepare its election. The completed but unsigned Form 4876-A was placed in internal tax records instead of being filed because of a misunderstanding. The accounting firm also filed an ordinary corporate return for the first short tax year rather than an IC-DISC return. After the IRS reported that it had no record of the election, the corporation sought relief. The IRS concluded that the regulatory-election standards were met and gave the corporation 60 days to file Form 4876-A, which would be treated as timely for its first taxable year. The ruling did not decide whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: Could the corporation file its Form 4876-A after the 90-day deadline for its first taxable year?
• Outcome: approved, with 60 days to file the election
• Key authorities: IRC § 992(b); 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: 201714013
Third Party Communication: None
Release Date: 4/7/2017
Date of Communication: Not Applicable
Index Number: 9100.22-00, 992.02-00
Person To Contact:
------------------------------------------ -------------------------, ID No. -----------------
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Telephone Number:
----------------------------------------------- -------------------- Refer Reply To:
CC:INTL:B06
--------------------------------------------------- PLR-121811-16 Date:
January 03, 2017

TY:-------
Legend

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

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

This responds to a letter dated June 10, 2016, supplemented by a letter dated November 14, 2016, submitted by your representatives 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 Year 1, 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

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submitted in support of the request for a ruling. It is subject to verification on examination.
FACTS

On Date 1, Taxpayer was formed to serve as an interest charge domestic international sales corporation (“IC-DISC”). Taxpayer is a domestic corporation that is owned by Individual A and Individual B. Company is a domestic corporation owned by Individual A, Individual B, Shareholder A, and Shareholder B. Shareholder A and Shareholder B are grantor trusts of which the grantors are Individual A and Individual B, respectively. Individual A and Individual B are not related to each other.

In Year 1, Taxpayer engaged Accounting Firm to complete and file Form 4876-A on Taxpayer’s behalf. Accounting Firm delivered a complete, but unsigned, Form 4876-A to Taxpayer’s CFO, who in turn delivered it to Taxpayer’s office manager with the instruction to file the form. However, due to a misunderstanding, the Form 4876-A was placed in Taxpayer’s internal tax records but never submitted to the Service. As a result, the Form 4876-A was not filed within 90 days after Date 1.

Accounting Firm was instructed to file Taxpayer’s Year 1 tax return for the short taxable year starting Date 1, and ending Date 2. Accounting Firm mistakenly filed a Form 1120, rather than a Form 1120-IC-DISC.

Taxpayer, assuming that Form 4876-A had been timely filed, filed Form 1120 IC-DISC for Year 2 with the Service. Taxpayer subsequently learned, via a Form 6800sc, that the Service had no record of the filing of a Form 4876-A. Taxpayer then instructed Law Firm to file a request for a ruling granting an extension of time to file Form 4876-A for Year 1, its first taxable year.

LAW AND ANALYSIS

Section 992(b)(1)(A) of the Internal Revenue Code1 provides that an election by a corporation to be treated as a DISC2 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) 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.

1
All section references are to the Internal Revenue Code.
2
As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.

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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 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.

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.

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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.

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