Extension granted to correct missing IC-DISC shareholder signature

Plain-English summary

A domestic corporation timely filed Form 4876-A to elect IC-DISC treatment but omitted one shareholder's consent signature. The corporation believed the election was effective and consistently filed IC-DISC returns, while its accounting firm repeatedly tried to resolve IRS notices that the election had not been approved. Because at least one affected year was closed, the corporation supplied an independent auditor's statement that granting relief would not prejudice the government. The IRS found that the regulatory standards were met and granted 60 days to file a corrected Form 4876-A effective for the first tax year. The ruling did not determine whether the corporation otherwise qualified for IC-DISC status or benefits.

Ruling snapshot

• Question: May the corporation correct a timely filed IC-DISC election that lacked one shareholder's consent signature?
• Outcome: Approved, with 60 days to file Form 4876-A
• Key authorities: IRC §§ 992(b) and 6501(a); 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: 202347003                                             Third Party Communication: None
 Release Date: 11/24/2023                                      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:06
                                                               PLR-102514-23
                                                               Date:
                                                               August 29, 2023




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Legend

Taxpayer =                -----------------------------------
Accounting Firm =         -----------------------------------------------
Company =                 ---------------------------------------
Individual 1 =            ------------------
Individual 2 =            -----------------
Individual 3 =            --------------------
Individual 4 =            -----------------
Individual 5 =            ---------------
Individual 6 =            ----------------
Individual 7 =            ----------------
Individual 8 =            -----------------
Year 1 =                  -------
Year 2 =                  -------
Year 3 =                  -------
Year 4 =                  -------
Year 5 =                  -------
Date 1 =                  -------------------
Date 2 =                  -------------------
Date 3 =                  ------------------
Date 4 =                  -------------
Date 5 =                  -------------------------
Date 6 =                  -------------------
Date 7 =                  --------------------------
Date 8 =                  -----------------------
Date 9 =                  ----------------------
Date 10 =                 -----------------------
Date 11 =                 -----------------------
Date 12 =                 -------------------------
PLR-102514-23                                2


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

This responds to a letter dated January 23, 2023, supplemented by additional
correspondence dated May 17, 2023, May 25, 2023, and July 10, 2023, 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 Accounting Firm 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, including the statements
about prior Service actions. It is subject to verification on examination.

                                         FACTS

On Date 1, Taxpayer was formed to operate as an interest charge domestic
international sales corporation (“IC-DISC”). Taxpayer is a domestic corporation that,
upon incorporation, was wholly owned by Individual 1, Individual 2, and Individual 3.
Company is a domestic corporation. Taxpayer functions solely as an IC-DISC, and
earns commissions from its supplier, Company.

On Date 2, Accounting Firm prepared Form 4876-A for execution by Taxpayer to elect
to be treated as an IC-DISC. Taxpayer signed and filed the form with the Internal
Revenue Service, Kansas City, MO. Taxpayer believed Form 4876-A to have been
successfully and timely filed, and has since been operating consistently as an IC-DISC.

Taxpayer uses the accrual accounting method, and its year-end is December 31.
Taxpayer timely filed its 2018 Form 1120-IC-DISC on August 5, 2019. Tax Year 2018 is
the first year Taxpayer transacted business. Taxpayer has timely filed Form 1120-IC-
DISC for each subsequent tax year.

Between Year 1 and Year 5, Taxpayer experienced turnover, with three different Chief
Financial Officers serving during that period. Individual 4 served as the Taxpayer’s Chief
Financial Officer from Taxpayer’s formation on Date 1 to the close of its Year 3 tax year.
Individual 5 then served as the Taxpayer’s Chief Financial Officer from Date 3 through
Date 4. Individual 6 currently serves as the Taxpayer’s Chief Financial Officer.

On or about Date 5, Taxpayer received a Letter 599C from the Service dated Date 5
stating that the Service could not process Taxpayer’s Form 4876-A because Taxpayer
PLR-102514-23                                3

was not eligible given that it did not reply to previous correspondence requesting
information needed to process the form.

Upon receipt of the Letter 599C dated Date 5, Individual 4 contacted Accounting Firm
for assistance. The Taxpayer and Accounting Firm confirmed that neither had received
any previous correspondence from the IRS regarding Taxpayer’s filed Form 4876-A. On
Date 6, Accounting Firm sent a response letter to the Service stating that previous
correspondence as referenced in the Letter 599C dated Date 5 was not received by
Taxpayer and requested a copy of the previous correspondence so that Taxpayer could
address the issue. On Date 12, Accounting Firm sent a response letter identical to the
letter it sent on Date 6, with additional language stating it was the fourth and final
attempt to contact the Service regarding Letter 599C dated Date 5. The previous
correspondence referenced in Letter 599C dated Date 5 was never received by
Taxpayer or Accounting Firm.

On or about Date 9, Taxpayer received a second Letter 599C dated Date 7 stating the
Service could not process Taxpayer’s Year 3 Form 1120-IC-DISC because the
Taxpayer was not eligible to file a Form 1120-IC-DISC due to the Service not receiving
an approved Form 4876-A. On or about Date 8, Taxpayer received a third Letter 599C
dated Date 8, stating the Service could not process Taxpayer’s Year 4 Form 1120-IC-
DISC for the same reason as stated in the second 599C letter.

On Date 10 and Date 11 Accounting Firm sent letters to the Service, stating Taxpayer
timely filed Form 4876-A on Date 2 and enclosing the Form 4876-A as filed.
Additionally, the letters enclosed the Date 5 Letter 599C, as well as the Taxpayer’s
response to that letter, and explained that since Taxpayer’s Date 6 response to the Date
5 Letter 599C, the Taxpayer had sent “multiple follow up letters” and made phone calls,
with no response from the Service. The letter concluded by stating that the Taxpayer
was not aware of any issue with its timely filed Form 4876-A, and it requested that the
Service provide the Taxpayer with any steps needed to resolve the issue. The Date 10
and Date 11 letters further requested that the Service process Taxpayer’s Forms 1120-
IC-DISC for Year 3 and Year 4, respectively.

After calls to the Service at the number provided in the Letters 599C, Individual 7 of
Accounting Firm, was able to speak with Individual 8 of the Service. Individual 8
provided that the Service received Taxpayer’s Form 4876-A and sent correspondence
to Taxpayer stating that Form 4876-A was missing a shareholder signature. Upon
review, Taxpayer and Accounting Firm concluded that Form 4876-A was missing the
signature and date of shareholder, Individual 3, in Part II of the Form 4876-A. Individual
8 provided that the prior correspondence from the Service requested that Taxpayer
correct this error. Individual 8 was unable to provide a copy of the prior correspondence
PLR-102514-23                                         4

to Taxpayer. Taxpayer was unable to correct the error in a timely manner because it did
not receive the prior correspondence.

Taxpayer states that the missing shareholder signature was a scrivener’s error.
Taxpayer intended to be classified as an IC-DISC as of Date 1, as evidenced by its filing
of Form 4876-A and subsequent consistent filing of Forms 1120-IC-DISC for Year 1,
Year 2, Year 3, and Year 4.

The period of limitations on assessment under Internal Revenue Code § 6501(a) is
closed for at least Year 1. However, Taxpayer has provided a statement from an
independent auditor as described in Treas. Reg. § 301.9100-3(c)(1)(ii) considering the
relevant circumstances of all affected parties and confirming that the interests of the
Government are not prejudiced under the standards contained in Treas. Reg.
§ 301.9100-3(c)(1).

                                        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 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.

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.



1
    As used in this letter, the terms “IC-DISC” and “DISC” have the same meaning.
PLR-102514-23                                  5

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.

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.

Treas. Reg. § 301.9100-3(c)(1) provides the standards the Commissioner will use to
determine when the interests of the Government are prejudiced. Treas. Reg.
§ 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if
granting relief would result in a taxpayer having a lower tax liability in the aggregate for
all taxable years affected by the election than the taxpayer would have had if the
election had been timely made (taking into account the time value of money).

Treas. Reg. § 301.9100-3(c)(1)(ii) provides that the interests of the Government are
ordinarily prejudiced if the taxable year in which the regulatory election should have
been made or any taxable years that would have been affected by the election had it
been timely made are closed by the period of limitations on assessment under Code
section 6501(a) before the taxpayer’s receipt of a ruling granting relief. However, the
Service may condition a grant of relief on the taxpayer providing the Service with a
statement from an independent auditor (other than an auditor providing an affidavit
pursuant to Treas. Reg. § 301.9100-3(e)(3)) certifying that the interests of the
Government are not prejudiced under the standards set forth in Treas. Reg.
§ 301.9100-3(c)(1)(i).

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.

                                      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.
PLR-102514-23                                                6


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.

In accordance with section 996(g), Taxpayer should not accept any income tax treaty
claims of reduced withholding under section 1442 with respect to distributions (deemed
or otherwise) of accumulated DISC income.

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. 2

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,

                                                    _____________________
                                                    L. Ulysses Chatman
                                                    Senior Counsel, Branch 6
                                                    (International)

Enclosures (2)

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2
    For example, no opinion is expressed regarding the consequences to any person under section 996(g).