IC-DISC election given effect despite a conflicting form filed the same day

Plain-English summary

An Interest Charge Domestic International Sales Corporation (IC-DISC) is a
special type of company that gives U.S. exporters a tax benefit on export
sales, but only if the corporation properly elects IC-DISC status by filing
Form 4876-A. This taxpayer was set up to act as an IC-DISC and timely filed the
election form, but on the very same day it also mistakenly filed another form
that, if honored, would have made IC-DISC treatment impossible. The IRS later
told the company its IC-DISC returns for the first two years were invalid
because no valid election was on file. The company asked the IRS to give effect
to its IC-DISC election anyway. The IRS agreed: it concluded the taxpayer was
eligible to elect IC-DISC status as of its formation date and that the
conflicting form is superseded, so the election stands. The ruling does not
guarantee the company actually meets all the ongoing IC-DISC requirements
(gross receipts, assets, capitalization tests); it only fixes the election
problem.

Ruling snapshot

• Question: Should the IRS give effect to the taxpayer's IC-DISC election
  despite a conflicting form filed the same day?
• Outcome: Approved (election given effect; conflicting election superseded)
• Key authorities: IRC § 992(a), (b); Treas. Reg. §§ 1.992-1, 1.992-2

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201909001                                              Third Party Communication: None
Release Date: 3/1/2019                                         Date of Communication: Not Applicable
Index Number: 992.02-00
                                                               Person To Contact:
---------------------------------------------------            ------------------------, ID No. ------------------
------------------------------------------                     ----------------------------------------------------
---------------------------
-------------------------------------------------------        Telephone Number:
                                                               ----------------------
                                                               Refer Reply To:
------------------------------------------------------------   CC:INTL:B06
                                                               PLR-103962-18
                                                               Date:
                                                               November 30, 2018

                                                               TY:-------

Legend

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

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

This responds to a letter dated February 8, 2018 submitted by Law Firm requesting that
the Internal Revenue Service (“Service”) give effect to Taxpayer’s election to be an
Interest Charge Domestic International Sales Corporation (“IC-DISC”) as of 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 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 Shareholder. Taxpayer was
formed on Date 1 to operate as an IC-DISC. Taxpayer was formed to sell export
property of Company to international buyers on a commission basis. Taxpayer
engaged Accounting Firm for advice and assistance with arranging for Taxpayer to
PLR-103962-18                                       2

qualify as an IC-DISC. On the same day that Taxpayer was formed, it timely filed Form
4876-A (the IC-DISC election form). However, on that same day, Taxpayer also
mistakenly filed a form that, if accepted, made treatment as an IC-DISC impossible.

Accounting Firm prepared and Taxpayer timely filed its Form 1120-IC-DISC for Year 1.
Taxpayer prepared and timely filed its Form 1120-IC-DISC for Year 2. Taxpayer was
subsequently notified by the Service that the Year 1 and Year 2 IC-DISC returns were
not eligible for filing based on the lack of a valid IC-DISC election for Taxpayer. Since
its incorporation, Taxpayer has conducted business and fulfilled all federal tax
requirements consistent with its understanding that it was an IC-DISC.

Law Firm submitted this request for relief on behalf of Taxpayer.

                                       LAW AND ANALYSIS

Section 992(a)(1) of the Internal Revenue Code1 provides that the term “DISC” 2 means,
with respect to any taxable year, a corporation which is incorporated under the laws of
any State and satisfies the following conditions for the taxable year: 95 percent or more
of the gross receipts (as defined in section 993(f)) of such corporation consist of
qualified export receipts (as defined in section 993(a)); the adjusted basis of the
qualified export assets (as defined in section 993(b)) of the corporation at the close of
the taxable year equals or exceeds 95 percent of the sum of the adjusted basis of all
assets of the corporation at the close of the taxable year; such corporation does not
have more than one class of stock and the par or stated value of its outstanding stock is
at least $2,500 on each day of the taxable year; and the corporation has made an
election pursuant to section 992(b) to be treated as a DISC and such election is in effect
for the taxable year.

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) 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.

Treasury Regulation § 1.992-1(a) provides that the term “DISC” means a corporation
which, for a taxable year: is duly incorporated and existing under the laws of any State
1
  Unless specified otherwise, all section references are references to the Internal Revenue Code of 1986,
as amended.
2
  As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-103962-18                                 3

or the District of Columbia; satisfies the gross receipts test described in paragraph (b) of
Treas. Reg. § 1.992-1; satisfies the assets test described in paragraph (c) of Treas.
Reg. § 1.992-1; satisfies the capitalization requirement described in paragraph (d) of
Treas. Reg. § 1.992-1; satisfies the requirement that an election to be treated as a DISC
be in effect for such year, as described in paragraph (e) of Treas. Reg. § 1.992-1;
maintains separate books and records; and is not an ineligible corporation described in
paragraph (f) of Treas. Reg. § 1.992-1.

Treasury Regulation § 1.992-1(e) provides that, in order for a corporation to be a DISC
for a taxable year, an election to be treated as a DISC must be made by such
corporation pursuant to Treas. Reg. § 1.992-2 and must be in effect for such taxable
year. Treasury Regulation § 1.992-1(e) also provides that a corporation does not
become or remain a DISC solely by making such an election, and that a corporation is a
DISC for a taxable year only if such an election is in effect for that year and the
corporation also satisfies the requirements of paragraphs (a) through (d) of that section.
Treasury Regulation § 1.992-2 contains rules regarding the time and manner of making
such an election.

Based on Taxpayer’s facts and representations, we conclude that it was eligible to
make the IC-DISC election and, if all other requirements were met, be treated as an IC-
DISC as of Date 1, despite the simultaneous erroneous filing of any other election
forms. Accordingly, any other election by Taxpayer inconsistent with IC-DISC status is
superseded.

This ruling letter is not a determination that Taxpayer is otherwise eligible to claim IC-
DISC status or benefits. Taxpayer should attach a copy of this ruling letter to its Federal
income tax return for the taxable years to which this ruling letter applies.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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-103962-18                                 4


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,


                                       _____________________________________
                                       Robert Z. Kelley
                                       Senior Counsel, Branch 6
                                       Office of Associate Chief Counsel (International)

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


cc: