Late relief to make an IC-DISC election after the company mistakenly filed an S-corporation election instead

Plain-English summary

An interest-charge domestic international sales corporation (IC-DISC) is a special export-incentive entity, and a company has to elect that status by filing Form 4876-A within 90 days of starting its first tax year. This taxpayer, a family-owned corporation set up to export agricultural produce, was supposed to make the IC-DISC election but instead inadvertently filed an S-corporation election (Form 2553). It then tried to revoke the S election, but the IRS had no record one was ever validly made. Because an S corporation cannot be a DISC, the taxpayer asked for an extension of time under Treasury Regulation section 301.9100-3 to file the IC-DISC election it had meant to make. The IRS found the failed S election was no obstacle (it either never took effect, or a revocation within the first two-and-a-half months would have wiped it out retroactively) and granted a 60-day extension to file Form 4876-A, to be treated as a timely IC-DISC election for the first year. The ruling shows how a taxpayer who filed the wrong election form can still obtain the intended election through 9100 relief.

Ruling snapshot

• Question: Should the taxpayer get an extension of time under Treas. Reg. § 301.9100-3 to file Form 4876-A electing IC-DISC status for its first taxable year, given that it mistakenly filed an S-corporation election instead?
• Outcome: Approved (60-day extension to file the IC-DISC election)
• Key authorities: IRC §§ 992(b), 992(d)(7), 1362(b) & (d), 1361(b)(2)(D); Treas. Reg. §§ 301.9100-1, 301.9100-3, 1.921-1T(b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201904009 Third Party Communication: None
Release Date: 1/25/2019 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-116407-18
Date:
September 13, 2018

                                                Legend

Taxpayer = ---------------------------------------
Opco = ---------------------------------------------
Individual = -----------------------
Law Firm A = ----------------------------
Law Firm B = ------------------------------------------------------------------------
Accounting Firm = ------------------------------------------------
Date 1 = ---------------------
Date 2 = --------------------------
Date 3 = ------------------------
Date 4 = -----------------------

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

This responds to your letter dated February 26, 2018, 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 (“DISC election”) for Taxpayer’s first taxable year.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

                                                  Facts

Taxpayer is a domestic corporation wholly owned by Individual and members of
Individual’s extended family that operates in connection with the export of agricultural
produce grown by Opco. Opco is an S corporation that is also owned by Individual and
PLR-116407-18 2

his extended family, in the same proportions as Taxpayer. Individual has long managed
Taxpayer and Opco.

Law Firm A and Accounting Firm have provided tax services to Opco and related
entities for many years.

Shortly before Date 1, Individual consulted with Law Firm A about benefits that an
interest charge domestic international sales corporation (“IC-DISC”)1 may provide.
Individual engaged Law Firm A to set up Taxpayer as an IC-DISC and prepare initial
corporate and tax filings, and engaged Accounting Firm to prepare Taxpayer’s returns.

A few weeks later, on Date 2, Taxpayer inadvertently filed Form 2553, “Election by a
Small Business Corporation (Under section 1362 of the Internal Revenue Code)” (“S
election”), to take effect as of incorporation, instead of a DISC election.

A few weeks after that, on Date 3 (and before the 15th day of the third month of
Taxpayer’s first taxable year), Taxpayer sent the Service a revocation letter regarding
the S election. The revocation was to be retroactive to incorporation. The letter, which
stated that the S election was due to inadvertent error and that Taxpayer was meant to
be a DISC, was signed by all of Taxpayer’s shareholders.

On Date 4, the Service promptly responded with a letter that the revocation request
could not be considered because there was no record of an S election. In other words,
Taxpayer erroneously attempted to make an S election rather than a DISC election, but
apparently also failed to make the S election in the first place.

Taxpayer and Accounting Firm further discussed the matter of the S and DISC elections
with the Service. Several months later, at Accounting Firm’s recommendation,
Taxpayer engaged Law Firm B to submit the ruling request at issue.

                                     Law and Analysis

Section 992(d)(7) of the Internal Revenue Code (the “Code”) provides that an S
corporation is not eligible to be treated as a DISC. Section 1361(b)(2)(D) provides that
a “DISC or former DISC” is ineligible to be a “small business corporation” that in turn
may by election be an S corporation. Under section 1362(b)(1)(B), a “small business
corporation” may elect to be an S corporation for the current taxable year within the first
two months and 15 days of the year.

Under section 1362(d)(1)(C)(i), shareholders owning more than one-half of the
corporation’s shares may revoke this election, and the revocation may be made
effective for the current taxable year if made within the first two months and 15 days.
1
An IC-DISC is the type of DISC for which the Internal Revenue Code provides for the years at issue.
See I.R.C. § 995(f).
PLR-116407-18 3

Section 992(b)(1)(A) provides that an election by a corporation to be treated as a DISC
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.

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.

Taxpayer’s status as an S corporation for its first taxable year would have precluded it
from electing to be a DISC for that year, and a retroactive revocation at this time would
not have been possible under section 1362(d). However, it appears that Taxpayer
never made a valid S election. And even if it did successfully made the S election,
Taxpayer’s revocation of such election during the first two and a half months of its first
taxable year would have had retroactive effect back to the first day of that year.
PLR-116407-18 4

Therefore, Taxpayer’s attempted S election poses no barrier to the DISC status that the
ruling request contemplates.

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).

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.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                   Sincerely,



                                   Christopher J. Bello
                                   Chief, Branch 6
                                   (International)