IRS grants 90 more days to make a late IC-DISC election after a defective Form 4876-A

Plain-English summary

A company was set up to be an interest charge domestic international sales
corporation (IC-DISC), a special export-incentive entity that earns
commissions on a related company's exports and gives its owners a tax deferral
benefit. To get IC-DISC treatment for its first year, the company had to file
Form 4876-A within 90 days, with all shareholders consenting. The filing was
botched: the form left the IC-DISC's tax-year question blank, and the
shareholder consent in Part II was not signed, so no valid election was ever
made. The company only learned of the defect after filing its IC-DISC return
and getting an IRS notice that no valid election was on file. It then asked for
"9100 relief," a discretionary extension under Treas. Reg. § 301.9100-3 to
make the late election. The IRS granted it. The company had acted reasonably
and in good faith (relying on its accounting and law firms) and relief would
not prejudice the government. The company has 90 days from the ruling to refile
Form 4876-A, which will count as a timely election for its first year. The
ruling does not decide whether the company otherwise qualifies as an IC-DISC.

Ruling snapshot

• Question: Should the IRS grant an extension of time under Treas. Reg. § 301.9100-3 to file a late Form 4876-A electing IC-DISC status?
• Outcome: Approved (90-day extension granted)
• Key authorities: IRC §§ 992(b)(1), 995(f); Temp. Treas. Reg. § 1.921-1T(b)(1); Treas. Reg. §§ 301.9100-1, 301.9100-3; IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202317016 Third Party Communication: None
Release Date: 4/28/2023 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-118967-22
Date:
January 26, 2023

Legend

Taxpayer = ----------------------------------------------------
Accounting Firm = -----------------------------
Law Firm = ------------------------------------------------
Opco = -----------------
Date 1 = --------------------
Date 2 = --------------------------
Date 3 = --------------------------
Date 4 = --------------------------
Date 5 = -------------------
Date 6 = -----------------
Individual = ------------------
Owner 1 = -----------------
Owner 2 = -------------------------------------
Owner 3 = ------------------------------------------
Owner 4 = -------------------------------
Owner 5 = ----------------
Owner 6 = ---------------------------

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

This responds to a letter dated August 31, 2022, supplemented by subsequent
additional correspondence 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 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
submitted in support of the request for a ruling. It is subject to verification on
examination.

                                     FACTS

On Date 1, Taxpayer was incorporated to operate as an interest charge domestic
international sales corporation ("IC-DISC"). Taxpayer is a domestic corporation that is
wholly owned by Opco. Opco is owned by Owners 1 through 6. Individual is President of
Taxpayer.

Taxpayer established a commission arrangement with Opco on Date 1. Under the
commission arrangement, Taxpayer receives commission payments related to Opco's
export of medical devices manufactured by Opco. Following advice from Accounting
Firm, Taxpayer was incorporated on Date 1. Taxpayer immediately began operating as
if it had a valid IC-DISC election in effect. Taxpayer maintained its own bank account
and maintained separate books and records to record IC-DISC transactions starting on
Date 1.

Shortly after Taxpayer's incorporation, Law Firm prepared Form 4876-A, Election To Be
Treated as an Interest Charge DISC, with an effective date of Date 1. Initially, Taxpayer
signed Part I of the Form 4876-A, at "Signature and Title of Officer" (of the IC-DISC), but
did not complete Part II ("Shareholders' Consent Statement"). On Date 2, Accounting
Firm received a correctly signed copy of Form 4876-A from Taxpayer. On Date 3,
Accounting Firm mailed the partially signed copy of Form 4876-A to the IRS via certified
mail and subsequently received confirmation of delivery. Accordingly, Form 4876-A was
submitted to the IRS but only partially completed. Taxpayer believed that all
requirements to conduct business and be treated as an IC-DISC for its first taxable year
were satisfied.

Even though Taxpayer assumed that all the necessary requirements to conduct
business as an IC-DISC were satisfied, Taxpayer did not qualify as an IC-DISC for
federal income tax purposes because it did not timely file a completed Form 4876-A
with the Service within 90 days of Date 1. Taxpayer did not realize this error until after
Taxpayer filed a Form 1120-IC-DISC tax return for the year ending Date 4 (the year of
its incorporation) and received a notice from the Service dated Date 5 stating that the
Service had not received a valid Form 4876-A with respect to Taxpayer. Taxpayer
asked Accounting Firm for assistance in addressing the Service's notice. Accounting
Firm had several communications with the IRS, and on Date 6, the IRS explained to
Accounting Firm that the Form 4876-A was rejected because a question on the Form
4876-A regarding the Tax Year of the IC-DISC was not answered by Law Firm and also
because the copy of the Form 4876-A mailed to the IRS by Accounting Firm had not
been signed in Part II by the shareholder. Taxpayer worked with Accounting Firm to
submit the request that is the subject of this ruling a few months later.

                                   LAW AND ANALYSIS

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

[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).

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 90 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.

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,



                                             Anand Desai
                                             Senior Counsel, Branch 6
                                             (International)

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