Table of Contents
- Schedule A
- Schedule B
- Schedule C
- Schedule E
- Schedule J
- Schedule K
- Schedule L
- Schedule N
- Schedule O
- Schedule P
Enter the tax year in the space provided at the top of the form. For a calendar year, enter the last two digits of the calendar year in the first entry space. For a fiscal or short tax year return, fill in the tax year space at the top of the form.
Include the suite, room, or other unit number after the street address. If the post office does not deliver mail to the street address and the corporation has a P.O. box, show the box number instead.
Enter the corporation's EIN. If the corporation does not have an EIN, it must apply for one. An EIN may be applied for:
Online—Click on the EIN link at
www.irs.gov/businesses/small. The EIN is issued immediately once the application information is validated.
By telephone at 1-800-829-4933.
By mailing or faxing Form SS-4, Application for Employer Identification Number.
If the corporation has not received its EIN by the time the return is due, enter “Applied for” and the date you applied in the space for the EIN. For more details, see the instructions for Form SS-4.
Only corporations located in the United States or U.S. possessions can use the online application. Foreign corporations must use one of the other methods to apply.
Enter the IC-DISC's total assets (as determined by the accounting method regularly used in keeping the IC-DISC's books and records) at the end of the tax year. If there are no assets at the end of the tax year, enter -0-.
If this is the IC-DISC's initial or final return, check the applicable box in item F at the top of the form.
If the IC-DISC has changed its address since it last filed a return, check the box for “Address change.”
If a change in address occurs after the return is filed, use Form 8822-B, Change of Address — Business, to notify the IRS of the new address.
If the IC-DISC changed its name since it last filed a return, check the box for “Name change.” Generally, an IC-DISC also must have amended its articles of incorporation and filed the amendment with the state in which it was incorporated.
To correct an error on a Form 1120-IC-DISC already filed, file an amended Form 1120-IC-DISC and check the “Amended return” box. If the amended return changes the income or distributions of income to shareholders, an amended Schedule K (Form 1120-IC-DISC) must be filed with the amended Form 1120-IC-DISC and given to each shareholder. Write “AMENDED” across the top of the corrected Schedule K you give to each shareholder.
For rules of stock attribution, see section 267(c). If the owner of the voting stock of the IC-DISC was an alien individual or a foreign corporation, partnership, trust, or estate, check the “Yes” box in the “Foreign owner” column and enter the name of the owner's country, in parentheses, in the address column. “Owner's country” for individuals is their country of residence; for other foreign entities, it is the country in which organized or otherwise created, or in which administered.
An IC-DISC must figure its taxable income although it does not pay most taxes. An IC-DISC is exempt from the corporate income tax, alternative minimum tax, and accumulated earnings tax.
An IC-DISC may not claim the general business credit or the credit for fuel produced from a nonconventional source. In addition, these credits may not be passed through to shareholders of the corporation.
The net operating loss deduction is the amount of the net operating loss carryover and carryback that may be deducted in the tax year. See section 172 for details.
If the IC-DISC uses either the gross receipts method or combined taxable income method to compute the IC-DISC's taxable income attributable to any transactions involving products or product lines, attach Schedule P (Form 1120-IC-DISC). Show in detail the IC-DISC's taxable income attributable to each such transaction or group of transactions.
Generally, inventories are required at the beginning and end of each tax year if the purchase or sale of merchandise is an income-producing factor. See Regulations section 1.471-1.
However, if the IC-DISC is a qualifying taxpayer or a qualifying small business taxpayer, it can adopt or change its accounting method to account for inventoriable items in the same manner as materials and supplies that are not incidental.
A qualifying taxpayer is a taxpayer that, for each prior tax year ending after December 16, 1998, has average annual gross receipts of $1 million or less for the 3 prior tax years.
A qualifying small business taxpayer is a taxpayer (a) that, for each prior tax year ending on or after December 31, 2000, has average annual gross receipts of $10 million or less for the 3 prior tax years and (b) whose principal business activity is not an ineligible activity.
Under this accounting method, inventory costs for merchandise purchased for resale are deductible in the year the merchandise is sold (but not before the year the IC-DISC paid for the merchandise, if it is also using the cash method). For additional guidance on this method of accounting for inventoriable items, see Pub. 538.
Enter amounts paid for merchandise during the tax year on line 2. The amount the IC-DISC may deduct for the tax year is figured on line 8.
All filers not using the cash method of accounting should see Section 263A uniform capitalization rules on page 8 before completing Schedule A.
If the IC-DISC uses intercompany pricing rules (for purchases from a related supplier), use the transfer price figured in Part II of Schedule P (Form 1120-IC-DISC).
If the IC-DISC acts as another person's commission agent on a sale, do not enter any amount in Schedule A for the sale. See Schedule P (Form 1120-IC-DISC).
If the IC-DISC is changing its method of accounting for the current tax year, it must refigure last year's closing inventory using the new method of accounting and enter the result on line 1. If there is a difference between last year's closing inventory and the refigured amount, attach an explanation and take it into account when figuring the IC-DISC's section 481(a) adjustment (explained on page 7).
For IC-DISCs that have elected the simplified production method, additional section 263A costs are generally those costs, other than interest, that were not capitalized under the IC-DISC's method of accounting immediately prior to the effective date of section 263A but are now required to be capitalized under section 263A. For details, see Regulations section 1.263A-2(b).
For IC-DISCs that have elected the simplified resale method, additional section 263A costs are generally those costs incurred with respect to the following categories:
Off-site storage or warehousing.
Handling, such as processing, assembling, repackaging, and transporting.
General and administrative costs (mixed service costs).
For details, see Regulations section 1.263A-3(d).
Enter on line 4 the balance of section 263A costs paid or incurred during the tax year not includible on lines 2, 3, and 5.
Enter on line 5 any costs paid or incurred during the tax year not entered on lines 2 through 4.
See Regulations sections 1.263A-1 through 1.263A-3 for details on figuring the amount of additional section 263A costs to be included in ending inventory. If the IC-DISC accounts for inventoriable items in the same manner as materials and supplies that are not incidental, enter on line 7 the portion of its merchandise purchased for resale that is included on line 6 and was not sold during the year.
Inventories may be valued at:
Cost or market value (whichever is lower); or
Any other method approved by the IRS that conforms to the requirements of the applicable regulations cited below.
However, if the IC-DISC is using the cash method of accounting, it is required to use cost.
IC-DISCs that account for inventoriable items in the same manner as materials and supplies that are not incidental may currently deduct expenditures for direct labor and all indirect costs that would otherwise be included in inventory costs.
The rolling average method of valuing inventories generally does not clearly reflect income for federal income tax purposes. However, if an IC-DISC uses the average cost method for financial accounting purposes, there are two safe harbors under which this method will be deemed to clearly reflect income for federal income tax purposes. See Rev. Proc. 2008-43, 2008-30 I.R.B. 186, as modified by Rev. Proc. 2008-52, 2008-36 I.R.B. 587, and as modified by Rev. Proc. 2011-14, 2011-4 I.R.B. 330, or a successor.
IC-DISCs that use erroneous valuation methods must change to a method permitted for Federal income tax purposes. Use Form 3115 to make this change.
On line 9a, check the method(s) used for valuing inventories. Under lower of cost or market, the term “market” (for normal goods) means the current bid price prevailing on the inventory valuation date for the particular merchandise in the volume usually purchased by the taxpayer. If section 263A applies to the taxpayer, the basic elements of cost must reflect the current bid price of all direct costs and all indirect costs properly allocable to goods on hand at the inventory date.
Inventory may be valued below cost when the merchandise is unsalable at normal prices or unusable in the normal way because the goods are subnormal due to damage, imperfections, shopwear, etc., within the meaning of Regulations section 1.471-2(c). The goods may be valued at the current bona fide selling price, minus direct cost of disposition (but not less than scrap value) if such a price can be established.
If this is the first year the Last-in, First-out (LIFO) inventory method was either adopted or extended to inventory goods not previously valued under the LIFO method provided in section 472, attach Form 970, Application To Use LIFO Inventory Method, or a statement with the information required by Form 970. Also check the LIFO box on line 9c. On line 9d, enter the amount or the percent of total closing inventories covered under section 472. Estimates are acceptable.
If the IC-DISC changed or extended its inventory method to LIFO and had to write up the opening inventory to cost in the year of election, report the effect of the write-up as other income (on page 2, Schedule B, line 2j or 3f), proportionately over a 3-year period that begins with the year of the LIFO election (section 472(d)).
For more information on inventory valuation methods, see Pub. 538.
If an income item falls into two or more categories, report each part on the applicable line. For example, if interest income consists of qualified interest from a foreign international sales corporation and nonqualifying interest from a domestic obligation, enter the qualified interest on an attached statement for line 2g and the nonqualifying interest on an attached statement for line 3f.
For gain from selling qualified export assets, attach a separate statement in addition to the forms required for lines 2h and 2i.
“United States,” as used in the following instructions, includes Puerto Rico and U.S. possessions, as well as the 50 states and the District of Columbia.
If the IC-DISC received commissions on selling or renting property or furnishing services, list in column (b) the gross receipts from the sales, rentals, or services on which the commissions arose, and in column (c), list the commissions earned. In column (d) report receipts from noncommissioned sales or rentals of property or furnishing of services, as well as all other receipts.
For purposes of completing line 1a and line 1b, related purchasers are members of the same controlled group (as defined in section 993(a)(3)) as the IC-DISC. All other purchasers are unrelated.
A qualified export sale or lease must meet a use test and a destination test in order to qualify.
The use test applies at the time of the sale or lease. If the property is used predominantly outside the United States and the sale or lease is not for ultimate use in the United States, it is a qualified export sale or lease. Otherwise, if a reasonable person would believe that the property will be used in the United States, the sale or lease is not a qualified export sale or lease. For example, if property is sold to a foreign wholesaler and it is known in trade circles that the wholesaler, to a substantial extent, supplies the U.S. retail market, the sale would not be a qualified export sale, and the receipts would not be qualified export receipts.
Regardless of where title or risk of loss shifts from the seller or lessor, the property must be delivered under one of the following conditions to meet the destination test:
Within the United States to a carrier or freight forwarder for ultimate delivery outside the United States to a buyer or lessee.
Within the United States to a buyer or lessee who, within 1 year of the sale or lease, delivers it outside the United States or delivers it to another person for ultimate delivery outside the United States.
Within or outside the United States to an IC-DISC that is not a member of the same controlled group (as defined in section 993(a)(3)) as the seller or lessor.
Outside the United States by means of the seller's delivery vehicle (ship, plane, etc.).
Outside the United States to a buyer or lessee at a storage or assembly site if the property was previously shipped from the United States by the seller or lessor.
Outside the United States to a purchaser or lessee if the property was previously shipped by the seller or lessor from the United States and if the property is located outside the United States pursuant to a prior lease by the seller or lessor, and either (a) the prior lease terminated at the expiration of its term (or by the action of the prior lessee acting alone), (b) the sale occurred or the term of the subsequent lease began after the time at which the term of the prior lease would have expired, or (c) the lessee under the subsequent lease is not a related person (a member of the same controlled group as defined in section 993(a)(3) or a relationship that would result in a disallowance of losses under section 267 or section 707(b)) immediately before or after the lease with respect to the lessor, and the prior lease was terminated by the action of the lessor (acting alone or together with the lessee).
The IC-DISC may have to make an adjustment under section 481(a) to prevent amounts of income or expense from being duplicated or omitted. This section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However, an IC-DISC may elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. The IC-DISC must complete the appropriate lines of Form 3115 to make the election.
Include any net positive section 481(a) adjustment on page 2, Schedule B, line 2j or 3f (depending on whether the inventory, when sold, will generate qualified export receipts). If the net section 481(a) adjustment is negative, report it on page 3, Schedule E, line 2g.
For purposes of the 20% ownership test on lines 1 through 7, the percentage of stock owned by the corporation is based on voting power and value of the stock. Preferred stock described in section 1504(a)(4) is not taken into account.
Enter dividends (except those received on debt-financed stock acquired after July 18, 1984—see section 246A) that:
Are received from less-than-20%-owned domestic corporations subject to income tax and
Qualify for the 70% deduction under section 243(a)(1).
Also include on line 1:
Taxable distributions from an IC-DISC or former DISC that are designated as being eligible for the 70% deduction and certain dividends of Federal Home Loan Banks. See section 246(a)(2).
Dividends received (except those received on debt-financed stock acquired after July 18, 1984) from a regulated investment company (RIC). The amount of dividends eligible for the dividends-received deduction under section 243 is limited by section 854(b). The corporation should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction.
Report so-called dividends or earnings received from mutual savings banks, etc., as interest. Do not treat them as dividends.
Enter on line 2:
Dividends (except those received on debt-financed stock acquired after July 18, 1984) that are received from 20%-or-more-owned domestic corporations subject to income tax and that are eligible for the 80% deduction under section 243(c) and
Taxable distributions from an IC-DISC or former DISC that are considered eligible for the 80% deduction.
Enter dividends that are:
Received on debt-financed stock acquired after July 18, 1984, from domestic and foreign corporations subject to income tax and that would otherwise be subject to the dividends-received deduction under section 243(a)(1), 243(c), or 245(a). Generally, debt-financed stock is stock that the corporation acquired by incurring a debt (e.g., it borrowed money to buy the stock).
Received from a RIC on debt-financed stock. The amount of dividends eligible for the dividends-received deduction is limited by section 854(b). The corporation should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction.
Dividends received on debt-financed stock acquired after July 18, 1984, are not entitled to the full 70% or 80% dividends-received deduction. The 70% or 80% deduction is reduced by a percentage that is related to the amount of debt incurred to acquire the stock. See section 246A. Also see section 245(a) before making this computation for an additional limitation that applies to dividends received from foreign corporations. Attach a statement to Form 1120-IC-DISC showing how the amount on line 3, column (c), was figured.
Enter dividends received on the preferred stock of a less-than-20%-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.
Enter dividends received on preferred stock of a 20%-or-more-owned public utility that is subject to income tax and is allowed the deduction under section 247 for dividends paid.
Enter the U.S.-source portion of dividends that:
Are received from less-than-20%-owned foreign corporations and
Qualify for the 70% deduction under section 245(a). To qualify for the 70% deduction, the corporation must own at least 10% of the stock of the foreign corporation by vote and value.
Enter the U.S.-source portion of dividends that are received from 20%-or-more-owned foreign corporations and that qualify for the 80% deduction under section 245(a).
Enter dividends received from wholly owned foreign subsidiaries that are eligible for the 100% deduction under section 245(b).
In general, the deduction under section 245(b) applies to dividends paid out of the earnings and profits of a foreign corporation for a tax year during which:
All of its outstanding stock is owned (directly or indirectly) by the domestic corporation receiving the dividends and
All of its gross income from all sources is effectively connected with the conduct of a trade or business within the United States.
Generally, line 9, column (c), may not exceed the amount from the worksheet below. However, in a year in which an NOL occurs, this limitation does not apply even if the loss is created by the dividends-received deduction. See sections 172(d) and 246(b).
Line 9, Column (c) Worksheet
|1.||Refigure line 5, page 1, Form 1120-IC-DISC, without any adjustment under section 1059 and without any capital loss carryback to the tax year under section 1212(a)(1)|
|2.||Multiply line 1 by 80% (.80)|
|3.||Add lines 2, 5, 7, and 8, column (c), and the part of the deduction on line 3, column (c), that is attributable to dividends received from 20%-or-more-owned corporations|
|4.||Enter the smaller of line 2 or line 3. If line 3 is larger than line 2, do not complete the rest of this worksheet. Instead, enter the amount from line 4 in the margin next to line 9 of Schedule C and on line 6b, page 1, Form 1120-IC-DISC|
|5.||Enter the total amount of dividends received from 20%-or-more-owned corporations that are included on lines 2, 3, 5, 7, and 8 of column (a)|
|6.||Subtract line 5 from line 1|
|7.||Multiply line 6 by 70% (.70)|
|8.||Subtract line 3 above from column (c) of line 9|
|9.||Enter the smaller of line 7 or line 8|
|10.||Dividends-received deduction after limitation. Add lines 4 and 9. (If this is less than line 9 of Schedule C, enter the smaller amount on line 6b, page 1, Form 1120-IC-DISC, and in the margin next to line 9 of Schedule C.)|
Include the following:
Dividends (other than capital gain distributions reported on Schedule D (Form 1120) and exempt-interest dividends) that are received from RICs and that are not subject to the 70% deduction.
Dividends from tax-exempt organizations.
Dividends (other than capital gain distributions) received from a real estate investment trust that, for the tax year of the trust in which the dividends are paid, qualifies under sections 856 through 860.
Dividends not eligible for a dividends-received deduction, which include the following:
Dividends received on any share of stock held for less than 46 days during the 91-day period beginning 45 days before the ex-dividend date. When counting the number of days the corporation held the stock, you may not count certain days during which the corporation's risk of loss was diminished. See section 246(c)(4) and Regulations section 1.246-5 for more details.
Dividends attributable to periods totaling more than 366 days that the IC-DISC received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When counting the number of days the IC-DISC held the stock, you may not count certain days during which the IC-DISC's risk of loss was diminished. See section 246(c)(4) and Regulations section 1.246-5 for more details. Preferred dividends attributable to periods totaling less than 367 days are subject to the 46-day holding period rule above.
Dividends on any share of stock to the extent the IC-DISC is under an obligation (including a short sale) to make related payments with respect to positions in substantially similar or related property.
Any other taxable dividend income not properly reported elsewhere on Schedule C.
Qualified dividends are dividends that qualify as qualified export receipts. They include all dividends (or amounts) includible in gross income (under section 951) that are attributable to stock of related foreign export corporations. See Qualified export receipts on page 3 and A related foreign export corporation on page 3 for more details.
Personal property (tangible and certain intangible property) acquired for resale.
The production of real property and tangible personal property by a corporation for use in its trade or business or in an activity engaged in for profit.
Direct costs and
An allocable part of most indirect costs (including taxes) that (a) benefit the assets produced or acquired for resale or (b) are incurred by reason of the performance of production or resale activities.
Compensation paid to officers attributable to services,
Rework labor, and
Contributions to pension, stock bonus, and certain profit-sharing, annuity, or deferred compensation plans.
Personal property acquired for resale if the IC-DISC's average annual gross receipts for the 3 prior tax years were $10 million or less.
Inventoriable items accounted for in the same manner as materials and supplies that are not incidental. See Cost of Goods Sold on page 5 for details.
The IC-DISC may elect to deduct up to $5,000 of such costs for the year the IC-DISC begins business operations.
The $5,000 deduction is reduced (but not below zero) by the amount the total costs exceed $50,000. If the total costs are $55,000 or more, the deduction is reduced to zero.
If the election is made, any costs that are not deductible must be amortized ratably over a 180-month period beginning with the month the IC-DISC begins business operations.
Enter export promotion expenses on lines 1a through 1m. Export promotion expenses are an IC-DISC's ordinary and necessary expenses paid or incurred to obtain qualified export receipts. Do not include income taxes. Enter on lines 2a through 2g any part of an expense not incurred to obtain qualified export receipts.
Enter the total salaries and wages paid for the tax year. Do not include salaries and wages deductible elsewhere on the return, such as amounts included in officers' compensation, cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.
Enter 50% of the freight expenses (except insurance) for shipping export property aboard U.S. flagships and U.S.-owned and U.S.-operated aircraft in those cases where you are not required to use U.S. ships or aircraft by law or regulations.
Enter deductible officers' compensation on line 1i. Attach a statement showing the name, social security number, and amount of compensation paid to all officers. Do not include compensation deductible elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan. See the Instructions for Form 1120 for more information on officers' compensation, including any special rules and limitations that may apply.
The IC-DISC determines who is an officer under the laws of the state where it is incorporated.
Enter any other allowable export promotion expenses not claimed elsewhere on the return.
Do not deduct fines or penalties imposed on the IC-DISC.
Enter taxes paid or accrued during the tax year, but do not include the following:
Taxes not imposed on the corporation.
Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of property (these taxes must be treated as part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition).
Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.).
Taxes deducted elsewhere on the return, such as those reflected in cost of goods sold.
See section 164(d) for apportionment of taxes on real property between seller and purchaser.
Do not deduct the following interest:
Interest on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income tax. For exceptions, see section 265(b).
For cash basis taxpayers, prepaid interest allocable to years following the current tax year (e.g., a cash basis calendar year taxpayer who in the current tax year prepaid interest allocable to any period after the current tax year may deduct only the amount allocable to the current tax year).
Interest on debt allocable to the production of designated property by a corporation for its own use. The corporation must capitalize this interest. Also capitalize any interest on debt allocable to an asset used to produce the property. See section 263A(f) and Regulations sections 1.263A-8 through 1.263A-15 for definitions and more information.
Special rules apply to:
Disqualified interest on certain indebtedness under section 163(j). See Form 8926, Disqualified Corporate Interest Expense Under Section 163(j) and Related Information, and the related instructions.
Forgone interest on certain below-market-rate loans (see section 7872).
Original issue discount on certain high-yield discount obligations. See section 163(e) to figure the disqualified portion.
Interest which is allocable to unborrowed policy cash values of life insurance, endowment, or annuity contracts issued after June 8, 1997. See section 264(f). Attach a statement showing the computation of the deduction.
For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 and the related regulations and Pub. 526, Charitable Contributions. For limitations on deduction and other special rules that apply to corporations, see the Instructions for Form 1120 and Pub. 542.
Enter any other allowable deduction not claimed on line 1 or lines 2a through 2f.
The IC-DISC may have to report a negative section 481(a) adjustment on line 2g. See Section 481(a) adjustment on page 7 for additional information.
Generally, a deduction may not be taken for any amount that is allocable to a class of exempt income. See section 265(b) for exceptions.
Do not deduct fines or penalties paid to a government for violating any law.
For more information on other deductions that may apply to corporations, see Pub. 535.
Enter gain recognized during the tax year on the sale or exchange of property, other than property which in the hands of the IC-DISC was a qualified export asset, previously transferred to the IC-DISC in a transaction in which the transferor realized gain but did not recognize the gain in whole or in part. See section 995(b)(1)(B). Show the computation of the gain on a separate statement. Include no more of the IC-DISC's gain than the amount of gain the transferor did not recognize on the earlier transfer.
Enter gain recognized on the sale or exchange of property described in section 995(b)(1)(C). Show the computation of the gain on a separate statement. Do not include any gain included in the computation of line 2. Include only the amount of the IC-DISC's gain that the transferor did not recognize on the earlier transfer and that would have been treated as ordinary income if the property had been sold or exchanged rather than transferred to the IC-DISC. Do not include gain on the sale or exchange of IC-DISC stock-in-trade or other property that either would be included in inventory if on hand at the end of the tax year or is held primarily for sale in the normal course of business.
Enter 50% of taxable income attributable to military property (section 995(b)(1)(D)). Show the computation of this income. To figure taxable income attributable to military property, use the gross income attributable to military property for the year and the deductions properly allocated to that income. See Regulations section 1.995-6.
Line 9 provides for the computation of the one-seventeenth deemed distribution of section 995(b)(1)(F)(i). Line 9 only applies to shareholders of the IC-DISC that are C corporations.
An IC-DISC is deemed to distribute any income that resulted from cooperating with an international boycott (section 995(b)(1)(F)(ii)). See Form 5713 to figure this deemed distribution and for reporting requirements for any IC-DISC with operations related to a boycotting country.
An IC-DISC is deemed to distribute the amount of any illegal payments, such as bribes or kickbacks, that it pays, directly or indirectly, to government officials, employees, or agents (section 995(b)(1)(F)(iii)).
Attach a computation showing the earnings and profits for the tax year. See section 312 for rules on figuring earnings and profits for the purpose of the section 995(b)(1) limitation.
Generally, any taxable income of the IC-DISC attributable to qualified export receipts that exceed $10 million will be deemed distributed.
If there were no commission sales, leases, rentals, or services for the tax year, enter on line 1, Part II, the total of lines 1c and 2k, column (e), Schedule B.
If there were commission sales, leases, rentals, or services for the tax year, the total qualified export receipts to be entered on line 1, Part II, are figured as follows (section 993(f)):
|1.||Add lines 1c and 2k, column (b), Schedule B|
|2.||Add lines 1c and 2k, column (d), Schedule B|
|3.||Add lines 1 and 2. Enter on line 1, Part II, Schedule J|
If the IC-DISC is a member of a controlled group (as defined in section 993(a)(3)) that includes more than one IC-DISC, only one $10 million limit is allowed to the group. If an allocation is required, a statement showing each member's portion of the $10 million limit must be attached to Form 1120-IC-DISC. See Proposed Regulations section 1.995-8(f) for details.
The $10 million limit (or the controlled group member's share) is prorated on a daily basis. Thus, for example, if, for its 2011 calendar tax year, an IC-DISC has a short tax year of 73 days, and it is not a member of a controlled group, the limit that would be entered on line 5 of Part II is $2,000,000 (73/365 times $10 million).
Enter the taxable income attributable to line 6, qualified export receipts. The IC-DISC may select the qualified export receipts to which the line 5 limitation is allocated.
See Proposed Regulations section 1.995-8 for details on determining the IC-DISC's taxable income attributable to qualified export receipts in excess of the $10 million amount. Special rules are provided for allocating the taxable income attributable to any related and subsidiary services, and for the ratable allocation of the taxable income attributable to the first transaction selected by the IC-DISC that exceeds the $10 million amount. Deductions must be allocated and apportioned according to the rules of Regulations section 1.861-8. The selection of the excess receipts by the IC-DISC is intended to permit the IC-DISC to allocate the $10 million limitation to the qualified export receipts of those transactions occurring during the tax year that permit the greatest amount of taxable income to be allocated to the IC-DISC under the intercompany pricing rules of section 994.
To avoid double counting of the deemed distribution, if an amount of taxable income for the tax year attributable to excess qualified export receipts is also deemed distributed under either line 1, 2, 3, or 4 of Part I, such amount of taxable income is only includible on that line of Part I, and must be subtracted from the amount otherwise reportable on line 7 of Part II and carried to line 5 of Part I. See Proposed Regulations section 1.995-8(d).
After filing the IC-DISC's current year tax return, the allocation of the $10 million limitation and the computation of the line 7 deemed distribution may be changed by filing an amended Form 1120-IC-DISC only under the conditions specified in Proposed Regulations section 1.995-8(b)(1).
If the corporation is a former DISC or a former IC-DISC that revoked IC-DISC status or lost IC-DISC status for failure to satisfy one or more of the conditions specified in section 992(a)(1) for the current tax year, each shareholder is deemed to have received a distribution taxable as a dividend on the last day of the current tax year. The deemed distribution equals the shareholder's prorated share of the DISC's or IC-DISC's income accumulated during the years just before DISC or IC-DISC status ended. The shareholder will be deemed to receive the distribution in equal parts on the last day of each of the 10 tax years of the corporation following the year of the termination or disqualification of the IC-DISC (but in no case over more than twice the number of years the corporation was a DISC or IC-DISC).
If the corporation is required to pay interest under section 992(c)(2)(B) on the amount of a distribution to meet the qualification requirements of section 992(c), report this interest on line 2c, Schedule E. Also include the amount on line 1, Part IV of Schedule J and show the computation of the interest on an attached statement.
Report on line 4a all actual distributions of previously taxed income. Also, include any distributions of pre-1985 accumulated DISC income that are nontaxable (see the instructions for Schedule L, line 12, below). Enter on the dotted line to the left of the line 4a amount the dollar amount of the distribution that is nontaxable pre-1985 DISC income and identify it as such. Do not include distributions of pre-1985 DISC income that are made under section 995(b)(2) because of prior year revocations or disqualifications.
In general, deferred DISC income is:
Accumulated IC-DISC income (for periods after 1984) of the IC-DISC as of the close of the computation year, over
The amount of distributions-in-excess-of-income for the tax year of the IC-DISC following the computation year.
For purposes of item 2 above, distributions-in-excess-of-income means the excess (if any) of:
Actual distributions to shareholders out of accumulated IC-DISC income, over
The amount of IC-DISC income (as defined in section 996(f)(1)) for the tax year following the computation year.
For purposes of items 1 and 2 above, see section 995(f) and Proposed Regulations section 1.995(f)-1 for a definition of computation year, examples, and other details on figuring deferred DISC income.
The amount on line 3, Part V, is allocated to each shareholder on line 10, Part III, of Schedule K (Form 1120-IC-DISC).
Shareholders of an IC-DISC must file Form 8404 if the IC-DISC reports deferred DISC income on line 10, Part III of Schedule K.
The balance sheet should agree with the IC-DISC's books and records. Include certificates of deposits as cash on line 1.
If the corporation was a qualified DISC as of December 31, 1984, the accumulated pre-1985 DISC income will generally be treated as previously taxed income (exempt from tax) when distributed to DISC shareholders after December 31, 1984.
The exemption does not apply to distributions of accumulated pre-1985 DISC income of an IC-DISC or former DISC that was made taxable under section 995(b)(2) because of a prior revocation of the DISC election or disqualification of the DISC. For more details on these distributions, see Temporary Regulations section 1.921-1T(a)(7).
Enter in line 1a the code number and percentage of total export gross receipts (defined below), for the product or service that accounts for the largest portion of the IC-DISC's export gross receipts. The product codes are on page 14 of these instructions. On line 1b enter the same information for the IC-DISC's next largest product or service.
An IC-DISC has export gross receipts of $10 million. Selling agricultural chemicals accounts for $4.5 million (45%) of that amount, which is the IC-DISC's largest product or service. The IC-DISC should enter “287” (the product code for agricultural chemicals) and “45%” in line 1a.
Selling industrial chemicals accounts for $2 million (20% of the $10 million total) and is the IC-DISC's second largest product or service. The IC-DISC should enter “281” (the product code for industrial inorganic and organic chemicals) and “20%” in line 1b.
Export gross receipts are receipts from any of the following.
Providing engineering or architectural services for construction projects located outside the United States.
Selling for direct use, consumption, or disposition outside the United States, property (such as inventory) produced in the United States.
Renting this property to unrelated persons for use outside the United States.
Providing services involved in such a sale or rental.
Providing export management services.
For commission sales, export gross receipts include the total receipts on which the IC-DISC earned the commission.
For purposes of line 2, Schedule N only, no reduction is to be made for receipts attributable to military property. Therefore, an IC-DISC's export gross receipts for purposes of line 2 includes the total of the amounts from page 2, Schedule B, columns (b) and (d) of lines 1c, 2a, 2b, 2c, and 2d.
Related persons are:
An individual, partnership, estate, or trust that controls the IC-DISC;
A corporation that controls the IC-DISC or is controlled by it; or
A corporation controlled by the same person or persons who control the IC-DISC.
Control means direct or indirect ownership of more than 50% of the total voting power of all classes of stock entitled to vote. See section 993(a)(3).
U.S. person is:
A citizen or resident of the United States, which includes the Commonwealth of Puerto Rico and possessions of the United States;
A domestic corporation or partnership; or
An estate or trust (other than a foreign estate or trust as defined in section 7701(a)(31)).
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