IRS grants extra time for IC-DISC election

Plain-English summary

An operating S corporation formed a subsidiary to act as an interest charge domestic international sales corporation for its export business. The subsidiary entered a commission agreement, received commissions, functioned as an IC-DISC, and filed annual IC-DISC returns, but its law and accounting firms misunderstood which firm would file Form 4876-A. The accounting firm mailed the election several days late and later learned from the IRS that timing was the only processing problem. The IRS found that the taxpayer satisfied the good-faith standard for regulatory relief. It granted 60 days to file Form 4876-A and have the election treated as timely for the subsidiary's first taxable year, without deciding whether the subsidiary otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: Could the corporation receive extra time to file its election to be treated as an IC-DISC?
• Outcome: Approved
• Key authorities: IRC § 992(b); Temp. Treas. Reg. § 1.921-1T; Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                 Department of the Treasury
                                                          Washington, DC 20224

 Number: 202104009                                        Third Party Communication: None
 Release Date: 1/29/2021                                  Date of Communication: Not Applicable
 Index Number: 992.02-00, 9100.00-00
                                                          Person To Contact:
 ---------------------------------------------            -----------------, ID No. -----------------
 ------------------------------------------               Telephone Number:
 ---------------------                                    --------------------
 --------------------------------                         Refer Reply To:
                                                          CC:INTL:B06
                                                          PLR-118720-20
                                                          Date:
                                                          October 28, 2020




Legend

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

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

This ruling responds to your letter dated August 13, 2020 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”)1 for Taxpayer’s first taxable year.

                                                 Facts

Taxpayer is a corporation owned by Opco. Opco is an S corporation which is owned by
one individual directly, and by four other individuals each through a respective trust.
Each entity and each individual is a U.S. tax resident.

Opco manufactures metalworking supplies. Opco exports some of its output. All of
Opco’s exports are to related parties.

Opco engaged Law Firm to set up Taxpayer as an IC-DISC in connection with
Taxpayer’s exporting. Law Firm incorporated Taxpayer on Date 1.

1 An Interest Charge Domestic International Sales Corporation (“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).

Since incorporation, Taxpayer has had in place a commission agreement with Opco
referencing the IC-DISC rules; has computed and received commissions and otherwise
functioned as an IC-DISC; and has filed an annual return on Form 1120-IC-DISC,
“Interest Charge Domestic International Sales Corporation Return.”

There was a misunderstanding between Law Firm and Accounting Firm (with whom
Opco had an established relationship) about who was to file the Form 4876-A in order
for Taxpayer to validly elect IC-DISC status effective as of incorporation. Around the
due date for Taxpayer to elect IC-DISC status effective as of incorporation, Law Firm
and Accounting Firm discovered this misunderstanding. Accounting Firm promptly
attempted to address the problem by filing a Form 4876-A for Taxpayer purporting to
elect IC-DISC status effective as of incorporation, but the form was mailed on Date 2,
several days after the relevant due date.

On or about Date 3, a few months later, Taxpayer received a notice from the Service
that the Form 4876-A could not be processed. The reason was not readily apparent to
Taxpayer and Accounting Firm from the notice.

Accounting Firm communicated with the Service for clarification. On Date 4, a few
weeks later, Accounting Firm understood from the Service that the problem was solely
the due date.

A few months after that, and about a year from Taxpayer’s incorporation, Accounting
Firm prepared and submitted the extension ruling request letter.

                                    Law and Analysis

Section 992(b)(1)(A) of the Internal Revenue Code (the “Code”) 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.

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.

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.

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.

Treas. Reg. § 301.9100-3(b)(1)(v) provides that a taxpayer is generally deemed to have
acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or advise the taxpayer to make, the election.

                                        Conclusion

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.

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.

                                       Sincerely,


                                       Christopher James Faiferlick
                                       Branch Chief, Branch 6
                                       (International)




cc: