Form 4876-A: What It Is and How to File It

Form 4876-A is the election a corporation files to be treated as an Interest Charge Domestic International Sales Corporation (IC-DISC). This tax structure is designed to incentivize U.S. businesses that export products. An IC-DISC is a separate corporate entity that is tax-exempt and allows the exporting company to defer income tax on a portion of its profits from international sales. This election shifts income from the primary exporting company to the IC-DISC, which can then distribute those earnings to its shareholders, often resulting in a lower overall tax liability.

Corporate Eligibility Requirements

A corporation must satisfy several conditions to qualify for IC-DISC status. The two primary requirements are the 95% qualified export receipts test and the 95% qualified export assets test. These tests mandate that for a tax year, at least 95% of the corporation’s gross receipts and at least 95% of its assets, measured by adjusted basis, must be related to qualified export activities.

Qualified export receipts are income derived from the sale, lease, or rental of export property for use outside the United States, and also includes receipts from services related to those sales or leases. Qualified export assets include the export property, business assets used to generate export receipts, and certain loans to U.S. producers. The corporation must be organized under the laws of a U.S. state or the District of Columbia.

Beyond the asset and receipts tests, the corporate structure is subject to specific rules. The entity must be a C corporation, meaning any S corporation must first terminate its S election before it can elect to be an IC-DISC. The corporation is also permitted to have only one class of stock, which must have a par or stated value of at least $2,500 on each day of the tax year.

Completing Form 4876-A and Shareholder Consent

Completing Form 4876-A requires specific corporate and shareholder information. The form asks for the corporation’s legal name, address, Employer Identification Number (EIN), the date it was incorporated, and the principal business activity code. You must also enter the specific tax year for which the election is to become effective. An officer of the corporation, such as the president or treasurer, must sign the election in Part I.

The Shareholder Consent Statement is in Part II of the form. For the election to be valid, every person who is a shareholder at the beginning of the first tax year the election takes effect must consent. This consent is irrevocable and binds all future transferees of those shares. Each shareholder must provide their name, address, and identifying number, which is a Social Security Number for an individual or an EIN for a business entity.

The form requires listing the number of shares each person holds and securing their signature. Shareholders may attach a separate consent statement to the form instead of signing Part II directly, as long as the separate statement contains all the same required information. It is important to coordinate with all shareholders to ensure their information is accurate and their signatures are obtained before the filing deadline.

Filing Deadlines and Procedures

For a newly formed corporation, the election must be filed within 90 days after the beginning of its first tax year. For an existing corporation, the election must be made during the 90-day period immediately preceding the first day of the tax year for which the election is to be effective. Missing the deadline will invalidate the election for that year, requiring the corporation to wait until the following tax year to file again.

The completed and signed form must be mailed to the IRS service center where the corporation files its annual Form 1120-IC-DISC. It is important to verify the correct mailing address on the IRS website or in the form instructions before mailing to avoid processing delays.

The IRS does not issue a formal approval or confirmation letter. The election is considered valid if the form was completed correctly and filed on time. The corporation should then operate in compliance with IC-DISC rules and file the annual information return, Form 1120-IC-DISC. Retaining a copy of the filed form and proof of mailing is a good record-keeping practice.

Terminating the DISC Election

An IC-DISC election remains in effect until it is ended through either a voluntary revocation or an automatic termination. For a voluntary revocation, shareholders holding a majority of the stock can file a revocation statement with the IRS service center where the corporation files its annual return. The statement must specify the first tax year for which the revocation is to be effective.

To be effective for a specific tax year, the revocation must be filed within the first 90 days of that year. If the revocation is filed after this 90-day window, it becomes effective for all tax years following the year in which the revocation was made.

Automatic termination occurs if the corporation fails to meet the eligibility requirements for five consecutive years. If a corporation does not satisfy the 95% qualified export receipts test or the 95% qualified export assets test for five years in a row, its IC-DISC status is automatically terminated. Once terminated, the corporation would need to file a new Form 4876-A to re-elect IC-DISC status in a future year.