Instructions for Form 1120-IC-DISC |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
File the 2006 return for calendar year 2006 and fiscal years that begin in 2006 and end in 2007. For a fiscal or short tax
year return, fill in the
tax year space at the top of the form.
Note.
The 2006 Form 1120-IC-DISC may also be used if:
The corporation must show its 2007 tax year on the 2006 Form 1120-IC-DISC and take into account any tax law changes that are
effective for tax
years beginning after December 31, 2006.
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.
Item C—Employer Identification Number (EIN)
Enter the corporation's EIN. If the corporation does not have an EIN, it must apply for one. An EIN may be applied for:
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Online—Click on the EIN link at
www.irs.gov/businesses/small. The EIN is issued immediately once
the application information is validated.
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By telephone at 1-800-829-4933 from 7:00 a.m. to 10:00 p.m. in the corporation's local time zone.
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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.
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-.
Item F—Initial Return, Final Return, Name Change, Address Change, or Amended Return
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If this is the IC-DISC's initial or final return, check the applicable box in item F at the top of the form.
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If the IC-DISC has changed its address since it last filed a return, check the box for “Address change.”
Note.
If a change in address occurs after the return is filed, use Form 8822, Change of Address, to notify the IRS of the new address.
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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.
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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 and its shareholders are not entitled to the possessions corporation tax credit (section 936). 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.
Line 6a. Net Operating Loss Deduction
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.
Line 8. Refundable Credit for Federal Tax Paid on Fuels
Enter the credit from Form 4136.
Line 9. Credit for Federal Telephone Excise Tax Paid
If the corporation was billed after February 28, 2003, and before August 1, 2006, for the federal telephone excise tax on
long distance or bundled
service, the corporation may be able to request a credit for the tax paid. The corporation had bundled service if its local
and long distance service
was provided under a plan that does not separately state the charge for local service. The corporation may not request the
credit if it has already
received a credit or refund from its service provider. If the corporation requests the credit, it may not ask its service
provider for a credit or
refund and must withdraw any request previously submitted to its provider.
The corporation may request the credit by attaching Form 8913, Credit for Federal Excise Tax Paid, showing the actual amount
the corporation paid.
The corporation also may be able to request the credit based on an estimate of the amount paid. See Form 8913 for details.
In either case, the
corporation must keep records to substantiate the amount of the credit requested.
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 may 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 9 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).
Line 1. Inventory at Beginning of Year
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 8).
Line 4. Additional Section 263A Costs
An entry is required on this line only for IC-DISCs that have elected a simplified method of accounting.
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.
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Off-site storage or warehousing.
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Purchasing.
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Handling, such as processing, assembling, repackaging, and transporting.
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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.
Line 7. Inventory at End of Year
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.
Lines 9a through 9f. Inventory Valuation Methods
Inventories may be valued at:
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 average cost (rolling average) method of valuing inventories generally does not conform to the requirements of the regulations.
See Rev. Rul.
71-234, 1971-1 C.B. 148.
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 schedule for line 2g and the nonqualifying interest on an attached schedule for line 3f.
For gain from selling qualified export assets, attach a separate schedule in addition to the forms required for lines 2h and
2i.
Nonaccrual experience method.
Accrual method corporations are not required to accrue certain amounts to be received from the performance of certain
services that, on the basis
of their experience, will not be collected, if the corporation's average annual gross receipts for the 3 prior tax years does
not exceed $5 million.
This provision does not apply to any amount if interest is required to be paid on the amount or if there is any penalty
for failure to timely pay
the amount. For more information, see section 448(d)(5) and Regulations section 1.448-2.
Corporations that qualify to use the nonaccrual experience method should attach a schedule showing total gross receipts,
the amount not accrued as
a result of the application of section 448(d)(5), and the net amount accrued. Enter the amount on the applicable line of Schedule
B.
Commissions: Special Rule
Note.
“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:
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Within the United States to a carrier or freight forwarder for ultimate delivery outside the United States to a buyer or lessee.
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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.
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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.
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Outside the United States by means of the seller's delivery vehicle (ship, plane, etc.).
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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.
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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).
Line-by-Line Instructions
Line 1a.
Enter the IC-DISC's qualified export receipts from export property sold to foreign, unrelated buyers for delivery
outside the United States. Do not
include amounts entered on line 1b.
Line 1b.
Enter the IC-DISC's qualified export receipts from export property sold for delivery outside the United States to
a related foreign entity for
resale to a foreign, unrelated buyer, or an unrelated buyer when a related foreign entity acts as commission agent.
Line 2a.
Enter the gross amount received from leasing or subleasing export property to unrelated persons for use outside the
United States.
Receipts from leasing export property may qualify in some years and not in others, depending on where the lessee uses
the property. Enter only
receipts that qualify during the tax year. (Use Schedule E to deduct expenses such as repairs, interest, taxes, and depreciation.)
Line 2b.
A service connected to a sale or lease is related to it if the service is usually furnished with that type of sale
or lease in the trade or
business where it took place. A service is subsidiary if it is less important than the sale or lease.
Line 2c.
Include receipts from engineering or architectural services on foreign construction projects abroad or proposed for
location abroad. These services
include feasibility studies, design and engineering, and general supervision of construction, but do not include services
connected with mineral
exploration.
Line 2d.
Include receipts for export management services provided to unrelated IC-DISCs.
Line 2f.
Include interest received on any loan that qualifies as a producer's loan.
Line 2g.
Enter interest on any qualified export asset other than interest on producer's loans. For example, include interest
on accounts receivable from
sales in which the IC-DISC acted as a principal or agent and interest on certain obligations issued, guaranteed, or insured
by the Export-Import Bank
or the Foreign Credit Insurance Association.
Line 2h.
On Schedule D (Form 1120), Capital Gains and Losses, report in detail every sale or exchange of a capital asset, even
if there is no gain or loss.
In addition to Schedule D (Form 1120), attach a separate schedule computing gain from the sale of qualified export
assets.
Line 2i.
Enter the net gain or loss from line 18, Part II, Form 4797, Sales of Business Property.
In addition to Form 4797, attach a separate schedule computing gain from the sale of qualified export assets.
Line 2j.
Enter any other qualified export receipts for the tax year not reported on lines 2a through 2i.
Section 481(a) adjustment.
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.
Line 3b.
Enter receipts from selling products subsidized under a U.S. program if they have been designated as excluded receipts.
Line 3c.
Enter receipts from selling or leasing property or services for use by any part of the U.S. Government if law or regulations
require U.S. products
or services to be used.
Line 3d.
Enter receipts from any IC-DISC that belongs to the same controlled group (as defined in section 993(a)(3)).
Line 3f.
Include in an attached schedule any nonqualifying gross receipts not reported on lines 3a through 3e. Do not offset
an income item against a
similar expense item.
The IC-DISC may have to report a section 481(a) adjustment on line 3f. See Section 481(a) adjustment above for additional information.
Dividends and Dividends-Received Deduction
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:
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Are received from less-than-20%-owned domestic corporations subject to income tax and
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Qualify for the 70% deduction under section 243(a)(1).
Also include on line 1:
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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).
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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:
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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
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Taxable distributions from an IC-DISC or former DISC that are considered eligible for the 80% deduction.
Enter dividends that are:
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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).
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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.
Line 3, Columns (b) and (c)
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
schedule 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:
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Are received from less-than-20%-owned foreign corporations and
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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:
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All of its outstanding stock is owned (directly or indirectly) by the domestic corporation receiving the dividends and
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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)
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2. |
Multiply line 1 by 80% (.80)
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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
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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
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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)
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6. |
Subtract line 5 from line 1
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7. |
Multiply line 6 by 70% (.70)
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8. |
Subtract line 3 above from column (c) of line 9
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9. |
Enter the smaller of line 7 or line 8
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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.)
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Include the following:
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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.
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Dividends from tax-exempt organizations.
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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.
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Dividends not eligible for a dividends-received deduction, which include the following:
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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.
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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.
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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.
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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 4 and
A related foreign export corporation on page 4 for more details.
Limitations on Deductions
Section 263A uniform capitalization rules.
The uniform capitalization rules of section 263A generally require corporations to capitalize, or include in inventory,
certain costs incurred in
connection with:
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Personal property (tangible and certain intangible property) acquired for resale.
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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.
Tangible personal property produced by a corporation includes a film, sound recording, videotape, book, or similar
property.
IC-DISCs subject to the section 263A uniform capitalization rules are required to capitalize:
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Direct costs and
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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.
For inventory, some of the indirect expenses that must be capitalized are:
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Administration expenses.
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Taxes.
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Depreciation.
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Insurance.
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Compensation paid to officers attributable to services.
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Rework labor.
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Contributions to pension, stock bonus, and certain profit-sharing, annuity, or deferred compensation plans.
Regulations section 1.263A-1(e)(3) specifies other indirect costs that relate to production or resale activities that
must be capitalized and those
that may be currently deductible.
Interest expense paid or incurred during the production period of designated property must be capitalized and is governed by special
rules. For more details, see Regulations sections 1.263A-8 through 1.263A-15.
The costs required to be capitalized under section 263A are not deductible until the property (to which the costs
relate) is sold, used, or
otherwise disposed of by the corporation.
Exceptions.
Section 263A does not apply to:
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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.
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Inventoriable items accounted for in the same manner as materials and supplies that are not incidental. See Cost of Goods Sold on
page 6 for details.
For more details on the uniform capitalization rules, see Regulations sections 1.263A-1 through 1.263A-3.
Transactions between related taxpayers.
Generally, an accrual basis taxpayer may only deduct business expenses and interest owed to a related party in the
year the payment is included in
the income of the related party. See sections 163(e)(3), 163(j), and 267 for limitations on deductions for unpaid interest
and expenses.
Golden parachute payments.
A portion of the payments made by a corporation to key personnel that exceeds their usual compensation may not be
deductible. This occurs when the
corporation has an agreement (golden parachute) with these key employees to pay them these excess amounts if control of the
corporation changes. See
section 280G and Regulations section 1.280G-1.
Business start-up and organizational costs.
Business start-up and organizational costs must be capitalized unless an election is made to deduct or amortize them.
The IC-DISC may elect to
amortize costs paid or incurred before October 23, 2004, over a period of 60 months or more. For costs paid or incurred after
October 22, 2004, the
following rules apply separately to each category of costs.
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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.
For more information, see Pub. 535, Business Expenses. For more details on the election for business start-up costs,
see section 195. For more
details on the election for organizational costs, see section 248.
Attach any statement required by Regulations section 1.195-1(b) or 1.248-1(c). Report the deductible amount of these
costs and any amortization on
line 2g of Schedule E. For amortization that begins during the 2006 tax year, complete and attach Form 4562.
Limitations on deductions related to property leased to tax-exempt entities.
If an IC-DISC leases property to a governmental or other tax-exempt entity, it may not claim deductions related to
the property to the extent that
they exceed the IC-DISC's income from the lease payments (tax exempt use loss). Amounts disallowed may be carried over to
the next tax year and
treated as a deduction with respect to the property for that tax year. See section 470 for more details and exceptions.
Contributions.
See the instructions for Line 2d on page 11 for limitations that apply to contributions.
Line 1. Export Promotion Expenses
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.
Include on line 1c depreciation and the part of the cost of certain property that the corporation elected to expense under
section 179. See Form
4562 and its instructions.
Line 1d. Salaries and Wages.
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.
If the corporation provided taxable fringe benefits to its employees, such as personal use of a car, do not deduct as wages
the amount allocated
for depreciation and other expenses claimed on lines 1c and 1m.
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.
Line 1i. Compensation of Officers
Enter deductible officers' compensation on line 1i. Attach a schedule 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.
The IC-DISC determines who is an officer under the laws of the state where it is incorporated.
Line 1j. Repairs and Maintenance
Enter the cost of incidental repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that
do not add to the value
of the property or appreciably prolong its life. New buildings, machinery, or permanent improvements that increase the value
of the property are not
deductible. They must be depreciated or amortized.
Line 1k. Pension, Profit-sharing, etc., Plans
Enter the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers
who maintain
such a plan generally must file one of the forms listed below, even if the plan is not a qualified plan under the Internal
Revenue Code. The filing
requirement applies even if the IC-DISC does not claim a deduction for the current tax year. There are penalties for failure
to file these forms on
time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f).
Form 5500,
Annual Return/Report of Employee Benefit Plan. File this form for a plan that is not a one-participant plan (see below).
Form 5500-EZ,
Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. File this form for a plan that only covers
the owner (or the owner and
his or her spouse) but only if the owner (or the owner and his or her spouse) owns the entire business.
Line 1l. Employee Benefit Programs
Enter contributions to employee benefit programs not claimed elsewhere on the return (e.g., insurance, health and welfare
programs, etc.) that are
not an incidental part of a pension, profit-sharing, etc., plan included on line 1k.
Line 1m. Other Export Promotion Expenses
Enter any other allowable export promotion expenses not claimed elsewhere on the return.
Note.
Do not deduct fines or penalties imposed on the IC-DISC.
The IC-DISC must use the specific chargeoff method of accounting for bad debts and may only deduct business bad debts when
they become wholly or
partially worthless.
Line 2b. Taxes and Licenses
Enter taxes paid or accrued during the tax year, but do not include the following:
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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 2006 prepaid interest allocable to any period after 2006 may deduct only the amount allocable to 2006).
-
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:
-
Interest on which no tax is imposed (see section 163(j)).
-
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.
Line 2d. Charitable Contributions
Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations
described in section
170(c) and any unused charitable contributions carried over from prior years.
IC-DISCs reporting taxable income on the accrual method may elect to treat as paid during the tax year any contributions paid
by the 15th day of
the 3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax
year. Attach a declaration
to the return stating that the resolution authorizing the contributions was adopted by the board of directors during the tax
year. The declaration
must include the date the resolution was adopted. See Regulations section 1.170A-11.
Limitation on deduction.
The total amount claimed may not be more than 10% of taxable income (line 7, page 1) computed without regard to the
following:
-
Any deduction for contributions.
-
The dividends-received deduction on line 6b, page 1.
-
The deduction allowed under section 249.
-
Any net operating loss (NOL) carryback to the tax year under section 172.
-
Any capital loss carryback to the tax year under section 1212(a)(1).
Carryover.
Charitable contributions over the 10% limitation may not be deducted for the tax year but may be carried over to the
next 5 tax years.
Substantiation requirements.
Generally, no deduction is allowed for any contribution of $250 or more unless the IC-DISC gets a written acknowledgment
from the donee
organization that shows the amount of cash contributed, describes any property contributed, and, either gives a description
and a good faith estimate
of the value of any goods or services provided in return for the contribution or states that no goods or services were provided
in return for the
contribution. The acknowledgment must be obtained by the due date (including extensions) of the IC-DISC's return, or, if earlier,
the date the return
is filed. Do not attach the acknowledgment to the tax return, but keep it with the IC-DISC's records.
Note.
For contributions of cash, check, or other monetary gifts (regardless of the amount), made in tax years beginning after August
17, 2006, the
corporation must maintain a bank record, or a receipt, letter, or other written communication from the donee organization
indicating the name of the
organization, the date of the contribution, and the amount of the contribution.
Contributions of property other than cash.
If an IC-DISC contributes property other than cash and claims over a $500 deduction for the property, it must attach
a schedule to the return
describing the kind of property contributed and the method used to determine its fair market value (FMV). IC-DISCs generally
must complete and attach
Form 8283, Noncash Charitable Contributions, to their returns for contributions of property (other than money) if the total
claimed deduction for all
property contributed was more than $5,000. Special rules apply to the contribution of certain property. See the instructions
for Form 8283.
Other special rules.
The IC-DISC must reduce its deduction for contributions of certain capital gain property. See sections 170(e)(1) and
170(e)(5).
A larger deduction is allowed for certain contributions of:
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Inventory and other property to certain organizations for use in the care of the ill, needy, or infants (section 170(e)(3)),
including
contributions of “apparently wholesome food” (section 170(e)(3)(C)) and contributions of qualified book inventory to public schools (section
170(e)(3)(D)), and
-
Scientific equipment used for research to institutions of higher learning or to certain scientific research organizations
(section
170(e)(4)).
-
Computer technology and equipment for educational purposes (section 170(e)(6)).
For more information on charitable contributions, including substantiation and recordkeeping requirements, see section
170 and the related
regulations and Pub. 526, Charitable Contributions. For special rules that apply to corporations, see Pub. 542.
Enter freight expense not deducted on line 1h as export promotion expense.
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 8 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.
Note.
Do not deduct fines or penalties paid to a government for violating any law.
Special rules apply to the following expenses:
Travel, meals, and entertainment.
Subject to the limitations and restrictions discussed below, an IC-DISC may deduct ordinary and necessary travel,
meals, and entertainment expenses
paid or incurred in its trade or business. Also, special rules apply to deductions for gifts, skybox rentals, luxury water
travel, convention
expenses, and entertainment tickets. See section 274 and Pub. 463 for more details.
Travel.
The IC-DISC may not deduct travel expenses of any individual accompanying a corporate officer or employee, including
a spouse or dependent of the
officer or employee, unless:
Meals and entertainment.
Generally, the IC-DISC may deduct only 50% of the amount otherwise allowable for meals and entertainment expenses
paid or incurred in its trade or
business. In addition (subject to exceptions under section 274(k)(2)):
-
Meals must not be lavish or extravagant;
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A bona fide business discussion must occur during, immediately before, or immediately after the meal; and
-
An employee of the IC-DISC must be present at the meal.
Membership dues.
The IC-DISC may deduct amounts paid or incurred for membership dues in civic or public service organizations, professional
organizations, business
leagues, trade associations, chambers of commerce, and boards of trade. However, no deduction is allowed if a principal purpose
of the organization is
to entertain, or provide entertainment facilities for, members or their guests. In addition, IC-DISCs may not deduct membership
dues in any club
organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs,
airline and hotel clubs,
and clubs operated to provide meals under conditions favorable to business discussion.
Entertainment facilities.
The IC-DISC may not deduct an expense paid or incurred for a facility (such as a yacht or hunting lodge) used for
an activity usually considered
entertainment, amusement, or recreation.
Amounts treated as compensation.
Generally, the IC-DISC may be able to deduct otherwise nondeductible entertainment, amusement, or recreation expenses
if the amounts are treated as
compensation to the recipient and reported on Form W-2 for an employee or on Form 1099-MISC for an independent contractor.
However, if the recipient is an officer, director, or beneficial owner (directly or indirectly) of more than 10% of
any class of stock, the
deductible expense is limited. See section 274(e)(2) and Notice 2005-45, 2005-24 I.R.B. 1228.
Lobbying expenses.
Generally, lobbying expenses are not deductible. These expenses include:
-
Amounts paid or incurred in connection with influencing Federal or state legislation (but not local legislation) or
-
Amounts paid or incurred in connection with any communication with certain Federal executive branch officials in an attempt
to influence the
official actions or positions of the officials. See Regulations section 1.162-29 for the definition of “influencing legislation.”
Dues and other similar amounts paid to certain tax-exempt organizations may not be deductible. See section 162(e)(3).
If certain in-house lobbying
expenditures do not exceed $2,000, they are deductible.
For more information on other deductions that may apply to corporations, see Pub. 535.
Deemed and Actual Distributions and Deferred DISC Income for the Tax Year
Part I—Deemed Distributions Under Section 995(b)(1)
Line 2. Recognized Gain on Section 995(b)(1)(B) Property
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 schedule. Include no more of the
IC-DISC's gain than the
amount of gain the transferor did not recognize on the earlier transfer.
Line 3. Recognized Gain on Section 995(b)(1)(C) Property
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
schedule. 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.
Line 4. Income Attributable to Military Property
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. Deemed Distributions to C Corporations
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.
Line 10. International Boycott Income
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.
Line 11. Illegal Bribes, etc.
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)).
Line 14. Earnings and Profits
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.
Line 17. Foreign Investment Attributable to Producer Loans
Line 17a. For shareholders other than C corporations.
To figure the amount for line 17a, attach a computation showing (1) the IC-DISC's foreign investment in producer's
loans during the tax year; (2)
accumulated earnings and profits (including earnings and profits for the 2006 tax year) minus the amount on line 15, Part
I; and (3) accumulated
IC-DISC income. Enter the smallest of these amounts (but not less than zero) on line 17a.
Line 17b. For C corporation shareholders.
To figure the amount for line 17b, attach a computation showing (1) the IC-DISC's foreign investment in producer's
loans during the tax year; (2)
accumulated earnings and profits (including earnings and profits for the 2006 tax year) minus the amount on line 16, Part
I; and (3) accumulated
IC-DISC income. Enter the smallest of these amounts (but not less than zero) on line 17b.
For purposes of lines 17a and 17b, foreign investment in producer's loans is the smallest of (1) the net increase
in foreign assets by members of
the controlled group (defined in section 993(a)(3)) to which the IC-DISC belongs; (2) the actual foreign investment by the
group's domestic members;
or (3) the IC-DISC's outstanding producer's loans to members of the controlled group.
Net increase in foreign assets and actual foreign investment are defined in sections 995(d)(2) and (3).
See Regulations section 1.995-5 for additional information on computing foreign investment attributable to producer's
loans.
Lines 20 and 21.
The percentages on lines 20 and 21 must add up to 100%.
Line 22.
Allocate the line 22 amount to shareholders that are individuals, partnerships, S corporations, trusts, and estates.
Part II—Section 995(b)(1)(E) Taxable Income
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
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2. |
Add lines 1c and 2k, column (d), Schedule B
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3. |
Add lines 1 and 2. Enter on line 1, Part II, Schedule J
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Line 3. Controlled Group Allocation
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.
Lines 4 and 5. Proration of $10 Million Limit
The $10 million limit (or the controlled group member's share) is prorated on a daily basis. Thus, for example, if, for its
2006 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 2006 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).
Part III—Deemed Distributions Under Section 995(b)(2)
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 2006, each shareholder is deemed to have received a distribution taxable
as a dividend on the last
day of the 2006 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).
Part IV—Actual Distributions
Line 1. Distributions To Meet Qualification Requirements under Section 992(c)
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 schedule.
Line 4a. Previously Taxed Income
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.
Part V—Deferred DISC Income Under Section 995(f)(3)
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:
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.
Shareholder's Statement of IC-DISC Distributions
Attach a separate Copy A, Schedule K (Form 1120-IC-DISC), to Form 1120-IC-DISC for each shareholder who received an actual
or deemed distribution
during the tax year or to whom the corporation reported deferred DISC income for the tax year.
The balance sheet should agree with the IC-DISC's books and records. Include certificates of deposits as cash on line 1.
Line 12. Accumulated Pre-1985 DISC Income
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.
Exception:
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).
Line 13. Accumulated IC-DISC Income
Accumulated IC-DISC income (for periods after 1984) is accounted for on line 13 of Schedule L. The balance of this account
is used in figuring
deferred DISC income in Part V of Schedule J.
Export Gross Receipts of the IC-DISC and Related U.S. Persons
Line 1. Product Code and Percentage
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 16 of these instructions. On line 1b
enter the same information
for the IC-DISC's next largest product or service.
Example:
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.
-
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.
-
An estate or trust (other than a foreign estate or trust as defined in section 7701(a)(31)).
Export Gross Receipts for 2006
Column (a).
All IC-DISCs should complete column (a) in line 2. If two or more IC-DISCs are related persons, only the IC-DISC with
the largest export gross
receipts should complete columns (b) and (c). If an IC-DISC acts as a commission agent for a related person, attribute the
total amount of the
transaction to the IC-DISC.
Complete column (a) to report the IC-DISC's export gross receipts from all sources (including the United States) for
the 2006 tax year.
Column (b). Export gross receipts of related IC-DISCs.
Complete column (b) to report related IC-DISCs' export gross receipts from all sources (including the United States).
Column (c). Export gross receipts of all other related U.S. persons.
Complete column (c) to report other related U.S. persons' export gross receipts from all sources except the United
States.
Line 3. Related U.S. Persons
Enter on line 3 the name, address, and identifying number of related U.S. persons in your controlled group.
Question 6. Boycott of Israel.
If question 6a, 6b, or 6c is checked “ Yes,” the IC-DISC must file Form 5713 and is also deemed to distribute part of its income. See Form 5713
for more information.
Question 7. Tax-exempt interest.
Report any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder
in a mutual fund or other
regulated investment company.
Intercompany Transfer Price or Commission
Complete and attach a separate Schedule P (Form 1120-IC-DISC) for each transaction or group of transactions to which you apply
the intercompany
pricing rules of section 994(a)(1) and (2).
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