Instruction 1120-IC DISC (Rev. December 2008)

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Page 1 of 14 Instructions for Form 1120-IC-DISC 16:24 - 30-MAR-2009

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Department of the Treasury

Internal Revenue Service

Instructions for

Form 1120-IC-DISC

(Rev. December 2008)

Interest Charge Domestic International

Sales Corporation Return

shareholders and specifies at the time

Section references are to the Internal

What Is an IC-DISC?

that this is a distribution to meet the

Revenue Code unless otherwise noted.

An IC-DISC is a domestic corporation that

qualification requirements.

Contents Page

has elected to be an IC-DISC and its

• If the IC-DISC did not meet the gross

election is still in effect. The IC-DISC

General Instructions ............. 1

receipts test, the distribution equals the

election is made by filing Form 4876-A,

Purpose of Form ................ 1

part of its taxable income attributable to

Election To Be Treated as an Interest

Who Must File .................. 1

gross receipts that are not qualified export

Charge DISC.

When To File ................... 2

gross receipts.

Generally, an IC-DISC is not taxed on

• If it did not meet the qualified export

Where To File .................. 2

its income. Shareholders of an IC-DISC

asset test, the distribution equals the fair

Who Must Sign ................. 2

are taxed on its income when the income

market value of the assets that are not

Other Forms and Statements

is actually (or deemed) distributed. In

qualified export assets on the last day of

That May Be Required .......... 2

addition, section 995(f) imposes an

the tax year.

Assembling the Return ............ 2

interest charge on shareholders for their

• If the IC-DISC did not meet either test,

share of DISC-related deferred tax

Accounting Methods .............. 2

the distribution equals the sum of both

liability. See Form 8404, Interest Charge

Accounting Periods .............. 2

amounts.

on DISC-Related Deferred Tax Liability,

Rounding Off to Whole Dollars . . .... 3

Regulations section 1.992-3 explains

for details.

Recordkeeping .................. 3

how to figure the distribution.

To be an IC-DISC, a corporation must

Definitions ..................... 3

Interest on late distribution. If the

be organized under the laws of a state or

Penalties ...................... 4

IC-DISC makes a distribution after Form

the District of Columbia and meet the

Specific Instructions ............ 4

1120-IC-DISC is due, interest must be

following tests.

paid to the United States Treasury. The

Taxable Income ................. 5

• At least 95% of its gross receipts during

interest charge is 4

/2% of the distribution

Schedule A—Cost of Goods

the tax year are qualified export receipts.

times the number of tax years that begin

• At the end of the tax year, the adjusted

Sold ........................ 5

after the tax year to which the distribution

basis of its qualified export assets is at

Schedule B—Gross Income ........ 6

relates until the date the IC-DISC made

least 95% of the sum of the adjusted

Schedule C—Dividends and

the distribution.

basis of all of its assets.

Dividends-Received Deduction .... 7

• It has only one class of stock, and its

If the IC-DISC must pay this interest,

Schedule E—Deductions .......... 8

outstanding stock has a par or stated

send the payment to the Internal Revenue

Schedule J—Deemed and

value of at least $2,500 on each day of

Service Center where you filed Form

Actual Distributions and

the tax year (or, for a new corporation, on

1120-IC-DISC within 30 days of making

Deferred DISC Income for the

the last day to elect IC-DISC status for

the distribution. On the payment, write the

Tax Year ................... 10

the year and on each later day).

IC-DISC’s name, address, and employer

• It maintains separate books and

Schedule K—Shareholder’s

identification number; the tax year; and a

records.

Statement of IC-DISC

statement that the payment represents

• It is not a member of any controlled

Distributions ................. 11 the interest charge under Regulations

group of which a foreign sales corporation

section 1.992-3(c)(4).

Schedule L—Balance Sheets

(FSC) is a member.

per Books .................. 11

• Its tax year must conform to the tax

Who Must File

Schedule N—Export Gross

year of the principal shareholder who has

The corporation must file Form

Receipts of the IC-DISC and

the highest percentage of voting power. If

1120-IC-DISC if it elected, by filing Form

Related U.S. Persons .......... 11

two or more shareholders have the

4876-A, to be treated as an IC-DISC and

Schedule O—Other Information . . . 12

highest percentage of voting power, the

its election is in effect for the tax year.

Schedule P—Intercompany

IC-DISC must elect a tax year that

If the corporation is a former DISC or

Transfer Price or Commission . . . 12

conforms to that of any one of the

former IC-DISC, it must file Form

principal shareholders. See section

Codes for Principal Business

1120-IC-DISC in addition to any other

441(h) and its regulations for more

Activity ..................... 13

return required.

information.

Schedule N Product Code

• Its election to be treated as an IC-DISC

A former DISC is a corporation that

System .................... 14

is in effect for the tax year.

was a DISC on or before December 31,

1984, but failed to qualify as a DISC after

See Definitions on page 3 and section

December 31, 1984, or did not elect to be

992 and related regulations for details.

General Instructions

an IC-DISC after 1984; and at the

Distribution to meet qualification

beginning of the current tax year, it had

requirements.

undistributed income that was previously

Purpose of Form

• An IC-DISC that does not meet the

taxed or it had accumulated DISC

Form 1120-IC-DISC is an information gross receipts test or qualified export

income.

return filed by interest charge domestic asset test during the tax year will still be

international sales corporations considered to have met them if, after the A former IC-DISC is a corporation that

(IC-DISCs), former DISCs, and former tax year ends, the IC-DISC makes a pro was an IC-DISC in an earlier year but did

IC-DISCs. rata property distribution to its not qualify as an IC-DISC for the current

Cat. No. 11476W

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tax year; and at the beginning of the copy of the order or instructions of the

Assembling the Return

current tax year, it had undistributed court authorizing signing of the return or

To ensure that the corporation’s tax return

income that was previously taxed or form.

is correctly processed, attach all

accumulated IC-DISC income. See

If an employee of the corporation

schedules and other forms after page 6,

section 992 and related regulations.

completes Form 1120-IC-DISC, the paid

Form 1120-IC-DISC, and in the following

A former DISC or former IC-DISC

preparer’s space should remain blank.

order.

need not complete lines 1 through 8 on

Anyone who prepares Form

1. Schedule N (Form 1120).

page 1 and the Schedules for figuring

1120-IC-DISC but does not charge the

2. Form 4136.

taxable income, but must complete

corporation should not complete that

3. Additional schedules in alphabetical

Schedules J, L, and M of Form

section. Generally, anyone who is paid to

order.

1120-IC-DISC and Schedule K (Form

prepare Form 1120-IC-DISC must sign it

4. Additional forms in numerical order.

1120-IC-DISC). Write “Former DISC” or

and fill in the “Paid Preparer’s Use Only”

“Former IC-DISC” across the top of the

area.

Complete every applicable entry space

return.

on Form 1120-IC-DISC. Do not enter

The paid preparer must complete the

“See Attached” instead of completing the

required preparer information and

When To File

entry spaces. If more space is needed on

• Sign the return in the space provided

File Form 1120-IC-DISC by the 15th day

the forms or schedules, attach separate

for the preparer’s signature, and

of the 9th month after its tax year ends.

sheets using the same size and format as

• Give a copy of the return to the

No extensions are allowed. If the due

the printed forms. If there are supporting

taxpayer.

date falls on a Saturday, Sunday, or a

statements and attachments, arrange

Note. A paid preparer may sign original

legal holiday, the corporation may file on

them in the same order as the schedules

or amended returns by rubber stamp,

the next business day.

or forms they support and attach them

mechanical device, or computer software

last. Show the totals on the printed forms.

Private delivery services. Corporations

program.

Enter the corporation’s name and EIN on

may use certain private delivery services

each supporting statement or attachment.

designated by the IRS to meet the “timely

Other Forms and

mailing as timely filing/paying” rule for tax

Accounting Methods

returns and payments. These private

Statements That May Be

delivery services include only the

Figure taxable income using the method

following.

Required

of accounting regularly used in keeping

the IC-DISC’s books and records. In all

• DHL Express (DHL): DHL Same Day

cases, the method used must clearly

Service, DHL Next Day 10:30 am, DHL Shareholders who are foreign persons.

show taxable income. Permissible

Next Day 12:00 pm, DHL Next Day 3:00 The corporation should inform

methods include cash, accrual, or any

pm, and DHL 2nd Day Service. shareholders who are nonresident alien

other method authorized by the Internal

• Federal Express (FedEx): FedEx individuals or foreign corporations, trusts,

Revenue Code.

Priority Overnight, FedEx Standard or estates that if they have gains from

Overnight, FedEx 2Day, FedEx disposal of stock in the IC-DISC, former

Generally, the following rules apply.

International Priority, and FedEx DISC, or former IC-DISC, or distributions

• An IC-DISC must use the accrual

International First. from accumulated IC-DISC income,

method of accounting if its average

• United Parcel Service (UPS): UPS Next including deemed distributions, they must

annual gross receipts exceed $5 million.

Day Air, UPS Next Day Air Saver, UPS treat these amounts as effectively

However, see Nonaccrual experience

2nd Day Air, UPS 2nd Day Air A.M., UPS connected with the conduct of a trade or

method on page 6.

Worldwide Express Plus, and UPS business conducted through a permanent

• Unless it is a qualifying taxpayer or a

Worldwide Express. establishment in the United States and

qualifying small business taxpayer, an

derived from sources within the United

IC-DISC must use the accrual method for

The private delivery service can tell

States.

sales and purchases of inventory items.

you how to get written proof of the mailing

See Cost of Goods Sold on page 5.

date.

Election to reduce basis under section

• A member of a controlled group may

362(e)(2)(C). The transferor and

Private delivery services cannot

not use an accounting method that would

transferee in certain section 351

deliver items to P.O. boxes. You

distort any group member’s income,

transactions may make a joint election

must use the U.S. Postal Service

including its own. For example, an

CAUTION

under section 362(e)(2)(C) to limit the

to mail any item to an IRS P.O. box

IC-DISC acts as a commission agent for

transferor’s basis in the stock received

address.

property sales by a related corporation

instead of the transferee’s basis in the

that uses the accrual method and pays

transferred property. The transferor and

Where To File

the IC-DISC its commission more than 2

transferee may make the election by

months after the sale. In this case, the

File Form 1120-IC-DISC at the following

attaching the statement as provided in

IC-DISC should not use the cash method

address: Internal Revenue Service, 201

Notice 2005-70, 2005-41 I.R.B. 694, to

of accounting because that method

W. Rivercenter Blvd., Covington, KY

their tax returns filed by the due date

materially distorts its income.

41019.

(including extensions) for the tax year in

Change in accounting method. To

which the transaction occurred. If the

Who Must Sign change its method of accounting used to

transferor is a controlled foreign

report taxable income, for income as a

corporation, its controlling U.S.

The return must be signed and dated by:

whole or for the treatment of any material

shareholder(s) can make the election.

• The president, vice president,

item, the IC-DISC must file Form 3115,

The common parent of a consolidated

treasurer, assistant treasurer, chief

Application for Change in Accounting

group can make the election for the

accounting officer or

Method.

group. Once made, the election is

• Any other corporate officer (such as tax

irrevocable. See section 362(e)(2)(C) and

officer) authorized to sign.

See Form 3115 and Pub. 538,

Notice 2005-70.

Accounting Periods and Methods, for

If a return is filed on behalf of a

more information on accounting methods.

corporation by a receiver, trustee, or Other forms and statements. See the

assignee, the fiduciary must sign the Instructions for Form 1120 and Pub. 542

Accounting Periods

return, instead of the corporate officer. for a list of other forms and statements a

Returns and forms signed by a receiver or corporation may need to file in addition to An IC-DISC must figure its taxable

trustee in bankruptcy on behalf of a the forms and statements discussed income on the basis of a tax year. A tax

corporation must be accompanied by a throughout these instructions. year is the annual accounting period an

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IC-DISC uses to keep its records and 4. Gross receipts from selling, 2. Neither excluded under section

report its income and expenses. exchanging, or otherwise disposing of 993(c)(2) nor declared in short supply

Generally, IC-DISCs may use a calendar qualified export assets that are not export under section 993(c)(3);

year or a fiscal year. property, but only if there is a recognized

3. Held mainly for sale, lease, or rent

gain.

in the ordinary course of a trade or

Note. The tax year of an IC-DISC must

5. Dividends (or amounts includible in

business, by or to an IC-DISC for direct

be the same as the tax year of the

gross income under section 951) with

use, consumption, or disposition outside

principal shareholder which, at the

respect to stock of a related foreign

the United States;

beginning of the IC-DISC tax year, has

export corporation (defined below).

4. Property not more than 50% of the

the highest percentage of voting power. If

6. Interest on any obligation that is a

fair market value of which is attributable

two or more shareholders have the

qualified export asset.

to articles imported into the United States;

highest percentage of voting power, the

7. Gross receipts for engineering or

and

IC-DISC must have a tax year that

architectural services for construction

5. Neither sold nor leased by or to

conforms to the tax year of any such

projects outside the United States.

another IC-DISC that, immediately before

shareholder. See section 441(h).

8. Gross receipts for the performance

or after the transaction, either belongs to

See Pub. 538 for more information on

of managerial services in furtherance of

the same controlled group (defined in

accounting periods and tax years.

the production of other qualified export

section 993(a)(3)) as your IC-DISC or is

receipts of an IC-DISC.

related to your IC-DISC in a way that

Rounding Off To Whole

would result in losses being denied under

For more information, see Regulations

section 267.

Dollars

section 1.993-1.

The IC-DISC may round off cents to

See Regulations section 1.993-3 for

Qualified export assets are any of

whole dollars on its return and schedules.

details.

the following.

If the IC-DISC does round to whole

dollars, it must round all amounts. To

1. Export property (see below).

A producer’s loan must meet all the

round, drop amounts under 50 cents and

2. Assets used primarily in connection

following terms.

increase amounts from 50 to 99 cents to

with the sale, lease, rental, storage,

1. Satisfy the requirements of sections

the next dollar (for example, $1.39

handling, transportation, packaging,

993(d)(2) and (3).

becomes $1 and $2.50 becomes $3).

assembly, or servicing of export property,

2. Not raise the unpaid balance due

or the performance of engineering or

If two or more amounts must be added

the IC-DISC on all of its producer’s loans

architectural services described in item 7

to figure the amount to enter on a line,

above the level of accumulated IC-DISC

of Qualified export receipts above or

include cents when adding the amounts

income it had at the start of the month in

managerial services in furtherance of the

and round off only the total.

which it made the loan.

production of qualified export receipts

3. Be evidenced by a note, or other

described in items 1, 2, 3, and 7 above.

Recordkeeping

written evidence of indebtedness, with a

3. Accounts receivable produced by

stated maturity date no more than 5 years

Keep the IC-DISC

s records for as long

transactions listed under Qualified export

after the date of the loan.

as they may be needed for the

receipts, items 1–4, 7, or 8 above.

4. Be made to a person engaged in a

administration of any provision of the

4. Temporary investments, such as

U.S. trade or business of making,

Internal Revenue Code. Usually, records

money and bank deposits, in an amount

growing, or extracting export property.

that support an item of income, deduction,

reasonable to meet the IC-DISC’s needs

or credit on the return must be kept for 3 5. Be designated as a producer’s loan

for working capital.

years from the date the return is due or when made.

5. Obligations related to a producer’s

filed, whichever is later. Keep records that

loan.

verify the IC-DISC’s basis in property for

For more information, see Schedule Q

6. Stock or securities of a related

as long as they are needed to figure the

(Form 1120-IC-DISC), Borrower’s

foreign export corporation (defined

basis of the original or replacement

Certificate of Compliance With the Rules

below).

property.

for Producer’s Loans, and Regulations

7. Certain obligations that are issued

section 1.993-4.

or insured by the U.S. Export-Import Bank

The IC-DISC should keep copies of all

or the Foreign Credit Insurance

filed returns. They help in preparing future

A related foreign export corporation

Association and that the IC-DISC

and amended returns.

includes the following.

acquires from such Bank or Association

1. A foreign international sales

or from the person who sold or bought the

Definitions

corporation is a related foreign export

goods or services from which the

The following definitions are based on

corporation if:

obligations arose.

sections 993 and 994.

• The IC-DISC directly owns more

8. Certain obligations held by the

Note. “United States,” as used in the

than 50% of the total voting power of the

IC-DISC that were issued by a domestic

following instructions, includes Puerto

foreign corporation’s stock;

corporation organized to finance export

Rico and U.S. possessions, as well as the

• For the tax year that ends with or

property sales under an agreement with

50 states and the District of Columbia.

within the IC-DISC’s tax year, at least

the Export-Import Bank under which the

95% of the foreign corporation’s gross

domestic corporation makes export loans

Section 993

receipts consists of the qualified export

that the Export-Import Bank guarantees.

Qualified export receipts are any of the

receipts described in items 1–4 of

9. Amounts (other than reasonable

following.

Qualified export receipts above and

working capital) on deposit in the United

interest on the qualified export assets

States used to acquire qualified export

1. Gross receipts from selling,

listed in items 3 and 4 of Qualified export

assets within the time provided by

exchanging, or otherwise disposing of

assets on page 3; and

Regulations section 1.993-2(j).

export property.

• The adjusted basis of the qualified

2. Gross receipts from leasing or

export assets in items 1–4 of Qualified

renting export property that the lessee

See Regulations section 1.993-2 for

export assets that the foreign corporation

uses outside the United States.

more information.

held at the end of the tax year is at least

3. Gross receipts from supporting

Export property must be:

95% of the adjusted basis of all assets it

services related to any qualified sale,

held then.

exchange, lease, rental, or other 1. Made, grown, or extracted in the

2. A real property holding company

disposition of export property by the United States by a person other than an

is a related foreign export corporation if:

IC-DISC. IC-DISC;

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• The IC-DISC directly owns more transaction understatements, and fraud.

Section 994(c), Export

than 50% of the total voting power of the See sections 6662, 6662A, and 6663.

Promotion Expenses

foreign corporation’s stock and

These are expenses incurred to help

• Its exclusive function is to hold title

distribute or sell export property for use or

to real property located outside the United

distribution outside the United States.

Specific Instructions

States for the exclusive use (under lease

These expenses do not include income

or otherwise) of the IC-DISC and

tax, but do include 50% of the cost of

applicable foreign law forbids the IC-DISC

Period Covered

shipping the export property on

to hold title to the property.

U.S.-owned and U.S.-operated aircraft or

Enter the tax year in the space provided

3. An associated foreign

ships in those cases where U.S. law or

at the top of the form. For a calendar

corporation is a related foreign export

regulations do not require that the export

year, enter the last two digits of the

corporation if:

property be shipped on such aircraft or

calendar year in the first entry space. For

• The IC-DISC or a controlled group

ships.

a fiscal or short tax year return, fill in the

of corporations to which the IC-DISC

tax year space at the top of the form.

belongs owns less than 10% of the total

Deficits in Earnings and Profits

voting power of the foreign corporation’s

Address

A deficit in earnings and profits is

stock (section 1563 defines a controlled

Include the suite, room, or other unit

chargeable in the following order:

group in this sense, and sections 1563(d)

number after the street address. If the

1. First, to any earnings and profits

and (e) define ownership) and

post office does not deliver mail to the

other than accumulated IC-DISC income

• The IC-DISC’s ownership of the

street address and the corporation has a

or previously taxed income.

foreign corporation’s stock or securities

P.O. box, show the box number instead.

2. Second, to any accumulated

reasonably furthers transactions that lead

IC-DISC income.

to qualified export receipts for the

Item C—Employer Identification

3. Third, to previously taxed income.

IC-DISC.

Number (EIN)

Do not apply any deficit in earnings and

Enter the corporation’s EIN. If the

See Regulations section 1.993-5 for

profits against accumulated IC-DISC

corporation does not have an EIN, it must

more information about related foreign

income that, as a result of the

apply for one. An EIN may be applied for:

export corporations.

corporation’s revoking its election to be

• Online—Click on the EIN link at www.

treated as an IC-DISC (or other

irs.gov/businesses/smallThe EIN is

Gross receipts are the IC-DISC’s total

disqualification), is deemed distributed to

issued immediately once the application

receipts from selling, leasing, or renting

the shareholders. See section

information is validated.

property that the corporation holds for

995(b)(2)(A).

• By telephone at 1-800-829-4933; from

sale, lease, or rent in the ordinary course

7:00 a.m. to 10:00 p.m. in the

of its trade or business and gross income

corporation’s local time zone.

Penalties

from all other sources. For commissions

• By mailing or faxing Form SS-4,

on selling, leasing, or renting property,

The IC-DISC may have to pay the

Application for Employer Identification

include gross receipts from selling,

following penalties unless it can show that

Number.

leasing, or renting the property on which

it had reasonable cause for not providing

the commissions arose. See Regulations

If the corporation has not received its

information or not filing a return.

section 1.993-6 for more information.

EIN by the time the return is due, enter

• $100 for each instance of not providing

“Applied for” and the date you applied in

required information, up to $25,000 during

Section 994, Intercompany

the space for the EIN. For more details,

the calendar year.

Pricing Rules

see the instructions for Form SS-4.

• $1,000 for not filing a return.

If a related person described in section

Note. Only corporations located in the

If the return is filed late and the failure

482 sells export property to the IC-DISC,

United States or U.S. possessions can

to file timely is due to reasonable cause,

use the intercompany pricing rules to

use the online application. Foreign

please explain. See section 6686 for

figure taxable income for the IC-DISC and

corporations must use one of the other

other details.

the seller. These rules generally do not

methods to apply.

Trust fund recovery penalty. This

permit the related person to price at a

penalty may apply if certain excise,

Item E—Total Assets

loss. Under intercompany pricing, the

income, social security, and Medicare

Enter the IC-DISC’s total assets (as

IC-DISC’s taxable income from the sale

taxes that must be collected or withheld

determined by the accounting method

(regardless of the price actually charged)

are not collected or withheld, or these

regularly used in keeping the IC-DISC’s

may not exceed the greatest of:

taxes are not paid. These taxes are

books and records) at the end of the tax

1. 4% of qualified export receipts on

generally reported on:

year. If there are no assets at the end of

the IC-DISC’s sale of the property plus

• Form 720, Quarterly Federal Excise

the tax year, enter -0-.

10% of the IC-DISC’s export promotion

Tax Return;

expenses attributable to the receipts,

Item F—Initial Return, Final

• Form 941, Employer’s QUARTERLY

2. 50% of the IC-DISC’s and the

Federal Tax Return; or

Return, Name Change, Address

seller’s combined taxable income from

• Form 945, Annual Return of Withheld

Change, or Amended Return

qualified export receipts on the property,

Federal Income Tax.

• If this is the IC-DISC’s initial or final

derived from the IC-DISC’s sale of the

return, check the applicable box in item F

The trust fund recovery penalty may

property plus 10% of the IC-DISC’s export

at the top of the form.

be imposed on all persons who are

promotion expenses attributable to the

• If the IC-DISC has changed its address

determined by the IRS to have been

receipts, or

since it last filed a return, check the box

responsible for collecting, accounting for,

3. Taxable income based on the sale

for “Address change.”

and paying over these taxes, and who

price actually charged, provided that

acted willfully in not doing so. The penalty

Note. If a change in address occurs after

under section 482 the price actually

is equal to the unpaid trust fund tax. See

the return is filed, use Form 8822,

charged clearly reflects the taxable

the instructions for Form 720 or Pub. 15

Change of Address, to notify the IRS of

income of the IC-DISC and the related

(Circular E), Employer’s Tax Guide, for

the new address.

person.

details, including the definition of

• If the IC-DISC changed its name since

responsible persons.

Schedule P (Form 1120-IC-DISC), it last filed a return, check the box for

Intercompany Transfer Price or Other penalties. Other penalties may be “Name change.” Generally, an IC-DISC

Commission, explains the intercompany imposed for negligence, substantial also must have amended its articles of

pricing rules in more detail. understatement of tax, reportable incorporation and filed the amendment

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with the state in which it was

Line 4. Additional Section 263A

Schedule A

incorporated.

Costs

• To correct an error on a Form

An entry is required on this line only for

Cost of Goods Sold

1120-IC-DISC already filed, file an

IC-DISCs that have elected a simplified

Generally, inventories are required at the

amended Form 1120-IC-DISC and check

method of accounting.

beginning and end of each tax year if the

the “Amended return” box. If the amended

For IC-DISCs that have elected the

purchase or sale of merchandise is an

return changes the income or distributions

simplified production method,

income-producing factor. See Regulations

of income to shareholders, an amended

additional section 263A costs are

section 1.471-1.

Schedule K (Form 1120-IC-DISC) must

generally those costs, other than interest,

However, if the IC-DISC is a qualifying

be filed with the amended Form

that were not capitalized under the

taxpayer or a qualifying small business

1120-IC-DISC and given to each

IC-DISC’s method of accounting

taxpayer, it may adopt or change its

shareholder. Write “AMENDED” across

immediately prior to the effective date of

accounting method to account for

the top of the corrected Schedule K you

section 263A but are now required to be

inventoriable items in the same manner

give to each shareholder.

capitalized under section 263A. For

as materials and supplies that are not

details, see Regulations section

incidental.

1.263A-2(b).

Question G(1)

For rules of stock attribution, see section

A qualifying taxpayer is a taxpayer For IC-DISCs that have elected the

267(c). If the owner of the voting stock of that, for each prior tax year ending after simplified resale method, additional

December 16, 1998, has average annual section 263A costs are generally those

the IC-DISC was an alien individual or a

gross receipts of $1 million or less for the costs incurred with respect to the

foreign corporation, partnership, trust, or

3 prior tax years. following categories:

estate, check the “Yes” box in the

• Off-site storage or warehousing.

“Foreign owner” column and enter the

A qualifying small business

• Purchasing.

name of the owner’s country, in

taxpayer is a taxpayer (a) that, for each

• Handling, such as processing,

parentheses, in the address column.

prior tax year ending on or after

assembling, repackaging, and

“Owner’s country” for individuals is their

December 31, 2000, has average annual

transporting.

country of residence; for other foreign

gross receipts of $10 million or less for

• General and administrative costs

entities, it is the country in which

the 3 prior tax years and (b) whose

(mixed service costs).

organized or otherwise created, or in

principal business activity is not an

For details, see Regulations section

which administered.

ineligible activity.

1.263A-3(d).

Under this accounting method,

Taxable Income

Enter on line 4 the balance of section

inventory costs for merchandise

263A costs paid or incurred during the tax

An IC-DISC must figure its taxable

purchased for resale are deductible in the

year not includible on lines 2, 3, and 5.

income although it does not pay most

year the merchandise is sold (but not

taxes. An IC-DISC is exempt from the

Line 5. Other Costs

before the year the IC-DISC paid for the

corporate income tax, alternative

merchandise, if it is also using the cash

Enter on line 5 any costs paid or incurred

minimum tax, and accumulated earnings

method). For additional guidance on this

during the tax year not entered on lines 2

tax.

method of accounting for inventoriable

through 4.

items, see Pub. 538.

An IC-DISC and its shareholders are

Line 7. Inventory at End of Year

Enter amounts paid for merchandise

not entitled to the possessions

See Regulations sections 1.263A-1

during the tax year on line 2. The amount

corporation tax credit (section 936). An

through 1.263A-3 for details on figuring

the IC-DISC may deduct for the tax year

IC-DISC may not claim the general

the amount of additional section 263A

is figured on line 8.

business credit or the credit for fuel

costs to be included in ending inventory. If

produced from a nonconventional source.

the IC-DISC accounts for inventoriable

All filers not using the cash method of

In addition, these credits may not be

items in the same manner as materials

accounting should see Section 263A

passed through to shareholders of the and supplies that are not incidental, enter

uniform capitalization rules on page 8

on line 7 the portion of its merchandise

corporation.

before completing Schedule A.

purchased for resale that is included on

If the IC-DISC uses intercompany

line 6 and was not sold during the year.

Line 6a. Net Operating Loss

pricing rules (for purchases from a related

Deduction

Lines 9a through 9f. Inventory

supplier), use the transfer price figured in

The net operating loss deduction is the

Valuation Methods

Part II of Schedule P (Form

amount of the net operating loss

Inventories may be valued at:

1120-IC-DISC).

carryover and carryback that may be

• Cost;

deducted in the tax year. See section 172 If the IC-DISC acts as another

• Cost or market value (whichever is

person’s commission agent on a sale, do

for details.

lower); or

not enter any amount in Schedule A for

• Any other method approved by the IRS

the sale. See Schedule P (Form

Line 7. Taxable Income

that conforms to the requirements of the

1120-IC-DISC).

applicable regulations cited below.

If the IC-DISC uses either the gross

receipts method or combined taxable

However, if the IC-DISC is using the

Line 1. Inventory at Beginning

income method to compute the IC-DISC’s

cash method of accounting, it is required

of Year

taxable income attributable to any

to use cost.

If the IC-DISC is changing its method of

transactions involving products or product

IC-DISCs that account for

accounting for the current tax year, it

lines, attach Schedule P (Form

inventoriable items in the same manner

must refigure last year’s closing inventory

1120-IC-DISC). Show in detail the

as materials and supplies that are not

using the new method of accounting and

IC-DISC’s taxable income attributable to

incidental may currently deduct

enter the result on line 1. If there is a

each such transaction or group of

expenditures for direct labor and all

difference between last year’s closing

transactions.

indirect costs that would otherwise be

inventory and the refigured amount,

included in inventory costs.

attach an explanation and take it into

Line 8. Refundable Credit for

account when figuring the IC-DISC’s The average cost (rolling average)

Federal Tax Paid on Fuels

section 481(a) adjustment (explained on method of valuing inventories generally

Enter the credit from Form 4136.

page 7). does not conform to the requirements of

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the regulations. See Rev. Rul. 71-234, 2g and the nonqualifying interest on an the following conditions to meet the

1971-1 C.B. 148. However, if an IC-DISC attached schedule for line 3f. destination test:

uses the average cost method for

1. Within the United States to a carrier

For gain from selling qualified export

financial accounting purposes, there are

or freight forwarder for ultimate delivery

assets, attach a separate schedule in

two safe harbors under which this method

outside the United States to a buyer or

addition to the forms required for lines 2h

will be deemed to clearly reflect income

lessee.

and 2i.

for federal income tax purposes. See

2. Within the United States to a buyer

Nonaccrual experience method.

Rev. Proc. 2008-43, 2008-30 I.R.B. 186,

or lessee who, within 1 year of the sale or

Accrual method corporations are not

for details.

lease, delivers it outside the United States

required to accrue certain amounts to be

or delivers it to another person for

IC-DISCs that use erroneous valuation

received from the performance of certain

ultimate delivery outside the United

methods must change to a method

services that, on the basis of their

States.

permitted for Federal income tax

experience, will not be collected, if the

3. Within or outside the United States

purposes. Use Form 3115 to make this

corporation’s average annual gross

to an IC-DISC that is not a member of the

change.

receipts for the 3 prior tax years does not

same controlled group (as defined in

On line 9a, check the method(s) used

exceed $5 million.

section 993(a)(3)) as the seller or lessor.

for valuing inventories. Under lower of

This provision does not apply to any

4. Outside the United States by

cost or market, the term “market” (for

amount if interest is required to be paid

means of the seller’s delivery vehicle

normal goods) means the current bid

on the amount or if there is any penalty

(ship, plane, etc.).

price prevailing on the inventory valuation

for failure to timely pay the amount. For

5. Outside the United States to a

date for the particular merchandise in the

more information, see section 448(d)(5)

buyer or lessee at a storage or assembly

volume usually purchased by the

and Regulations section 1.448-2.

site if the property was previously shipped

taxpayer. If section 263A applies to the

from the United States by the seller or

Corporations that qualify to use the

taxpayer, the basic elements of cost must

lessor.

nonaccrual experience method should

reflect the current bid price of all direct

6. Outside the United States to a

attach a schedule showing total gross

costs and all indirect costs properly

purchaser or lessee if the property was

receipts, the amount not accrued as a

allocable to goods on hand at the

previously shipped by the seller or lessor

result of the application of section

inventory date.

from the United States and if the property

448(d)(5), and the net amount accrued.

Inventory may be valued below cost

is located outside the United States

Enter the amount on the applicable line of

when the merchandise is unsalable at

pursuant to a prior lease by the seller or

Schedule B.

normal prices or unusable in the normal

lessor, and either (a) the prior lease

way because the goods are subnormal

Commissions: Special Rule

terminated at the expiration of its term (or

due to damage, imperfections, shopwear,

Note. “United States,” as used in the

by the action of the prior lessee acting

etc., within the meaning of Regulations

following instructions, includes Puerto

alone), (b) the sale occurred or the term

section 1.471-2(c). The goods may be

Rico and U.S. possessions, as well as the

of the subsequent lease began after the

valued at the current bona fide selling

50 states and the District of Columbia.

time at which the term of the prior lease

price, minus direct cost of disposition (but

would have expired, or (c) the lessee

If the IC-DISC received commissions

not less than scrap value) if such a price

under the subsequent lease is not a

on selling or renting property or furnishing

can be established.

related person (a member of the same

services, list in column (b) the gross

If this is the first year the Last-in,

controlled group as defined in section

receipts from the sales, rentals, or

First-out (LIFO) inventory method was

993(a)(3) or a relationship that would

services on which the commissions

either adopted or extended to inventory

result in a disallowance of losses under

arose, and in column (c), list the

goods not previously valued under the

section 267 or section 707(b))

commissions earned. In column (d) report

LIFO method provided in section 472,

immediately before or after the lease with

receipts from noncommissioned sales or

attach Form 970, Application To Use

respect to the lessor, and the prior lease

rentals of property or furnishing of

LIFO Inventory Method, or a statement

was terminated by the action of the lessor

services, as well as all other receipts.

with the information required by Form

(acting alone or together with the lessee).

For purposes of completing line 1a and

970. Also check the LIFO box on line 9c.

line 1b, related purchasers are members

On line 9d, enter the amount or the

Line-by-Line Instructions

of the same controlled group (as defined

percent of total closing inventories

in section 993(a)(3)) as the IC-DISC. All

Line 1a. Enter the IC-DISC’s qualified

covered under section 472. Estimates are

other purchasers are unrelated.

export receipts from export property sold

acceptable.

to foreign, unrelated buyers for delivery

A qualified export sale or lease must

If the IC-DISC changed or extended its

outside the United States. Do not include

meet a use test and a destination test in

inventory method to LIFO and had to

amounts entered on line 1b.

order to qualify.

write up the opening inventory to cost in

the year of election, report the effect of

The use test applies at the time of the

Line 1b. Enter the IC-DISC’s qualified

the write-up as other income (on page 2,

sale or lease. If the property is used

export receipts from export property sold

Schedule B, line 2j or 3f), proportionately

predominantly outside the United States

for delivery outside the United States to a

over a 3-year period that begins with the

and the sale or lease is not for ultimate

related foreign entity for resale to a

year of the LIFO election (section 472(d)).

use in the United States, it is a qualified

foreign, unrelated buyer, or an unrelated

export sale or lease. Otherwise, if a

buyer when a related foreign entity acts

For more information on inventory

reasonable person would believe that the

as commission agent.

valuation methods, see Pub. 538.

property will be used in the United States,

Line 2a. Enter the gross amount

the sale or lease is not a qualified export

Schedule B

received from leasing or subleasing

sale or lease. For example, if property is

export property to unrelated persons for

sold to a foreign wholesaler and it is

Gross Income

use outside the United States.

known in trade circles that the wholesaler,

If an income item falls into two or more

to a substantial extent, supplies the U.S.

categories, report each part on the Receipts from leasing export property

retail market, the sale would not be a

applicable line. For example, if interest may qualify in some years and not in

qualified export sale, and the receipts

income consists of qualified interest from others, depending on where the lessee

would not be qualified export receipts.

a foreign international sales corporation uses the property. Enter only receipts that

and nonqualifying interest from a Regardless of where title or risk of loss qualify during the tax year. (Use Schedule

domestic obligation, enter the qualified shifts from the seller or lessor, the E to deduct expenses such as repairs,

interest on an attached schedule for line property must be delivered under one of interest, taxes, and depreciation.)

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Line 2b. A service connected to a sale Line 3c. Enter receipts from selling or

Line 3, Column (a)

or lease is related to it if the service is leasing property or services for use by

Enter dividends that are:

usually furnished with that type of sale or any part of the U.S. Government if law or

• Received on debt-financed stock

lease in the trade or business where it regulations require U.S. products or

acquired after July 18, 1984, from

took place. A service is subsidiary if it is services to be used.

domestic and foreign corporations subject

less important than the sale or lease.

to income tax and that would otherwise

Line 3d. Enter receipts from any

be subject to the dividends-received

Line 2c. Include receipts from

IC-DISC that belongs to the same

deduction under section 243(a)(1),

engineering or architectural services on

controlled group (as defined in section

243(c), or 245(a). Generally,

foreign construction projects abroad or

993(a)(3)).

debt-financed stock is stock that the

proposed for location abroad. These

Line 3f. Include in an attached schedule

corporation acquired by incurring a debt

services include feasibility studies, design

any nonqualifying gross receipts not

(e.g., it borrowed money to buy the

and engineering, and general supervision

reported on lines 3a through 3e. Do not

stock).

of construction, but do not include

offset an income item against a similar

• Received from a RIC on debt-financed

services connected with mineral

expense item.

stock. The amount of dividends eligible

exploration.

for the dividends-received deduction is

The IC-DISC may have to report a

Line 2d. Include receipts for export

limited by section 854(b). The corporation

section 481(a) adjustment on line 3f. See

management services provided to

should receive a notice from the RIC

Section 481(a) adjustment above for

unrelated IC-DISCs.

specifying the amount of dividends that

additional information.

Line 2f. Include interest received on any

qualify for the deduction.

loan that qualifies as a producer’s loan.

Schedule C

Line 3, Columns (b) and (c)

Line 2g. Enter interest on any qualified

Dividends received on debt-financed

export asset other than interest on

Dividends and

stock acquired after July 18, 1984, are not

producer’s loans. For example, include

Dividends-Received Deduction

entitled to the full 70% or 80%

interest on accounts receivable from

dividends-received deduction. The 70%

For purposes of the 20% ownership test

sales in which the IC-DISC acted as a

or 80% deduction is reduced by a

on lines 1 through 7, the percentage of

principal or agent and interest on certain

percentage that is related to the amount

stock owned by the corporation is based

obligations issued, guaranteed, or insured

of debt incurred to acquire the stock. See

on voting power and value of the stock.

by the Export-Import Bank or the Foreign

section 246A. Also see section 245(a)

Preferred stock described in section

Credit Insurance Association.

before making this computation for an

1504(a)(4) is not taken into account.

Line 2h. On Schedule D (Form 1120),

additional limitation that applies to

Capital Gains and Losses, report in detail

Line 1, Column (a)

dividends received from foreign

every sale or exchange of a capital asset,

corporations. Attach a schedule to Form

Enter dividends (except those received on

even if there is no gain or loss.

1120-IC-DISC showing how the amount

debt-financed stock acquired after July

In addition to Schedule D (Form 1120),

on line 3, column (c), was figured.

18, 1984–see section 246A) that:

attach a separate schedule computing

• Are received from

Line 4, Column (a)

gain from the sale of qualified export

less-than-20%-owned domestic

assets.

Enter dividends received on the preferred

corporations subject to income tax and

stock of a less-than-20%-owned public

• Qualify for the 70% deduction under

Line 2i. Enter the net gain or loss from

utility that is subject to income tax and is

section 243(a)(1).

line 18, Part II, Form 4797, Sales of

allowed the deduction provided in section

Business Property.

Also include on line 1:

247 for dividends paid.

• Taxable distributions from an IC-DISC

In addition to Form 4797, attach a

or former DISC that are designated as

separate schedule computing gain from

Line 5, Column (a)

being eligible for the 70% deduction and

the sale of qualified export assets.

Enter dividends received on preferred

certain dividends of Federal Home Loan

Line 2j. Enter any other qualified export

stock of a 20%-or-more-owned public

Banks. See section 246(a)(2).

receipts for the tax year not reported on

utility that is subject to income tax and is

• Dividends received (except those

lines 2a through 2i.

allowed the deduction under section 247

received on debt-financed stock acquired

for dividends paid.

Section 481(a) adjustment. The

after July 18, 1984) from a regulated

IC-DISC may have to make an

investment company (RIC). The amount

Line 6, Column (a)

adjustment under section 481(a) to

of dividends eligible for the

Enter the U.S.-source portion of dividends

prevent amounts of income or expense

dividends-received deduction under

that:

from being duplicated or omitted. This

section 243 is limited by section 854(b).

• Are received from

section 481(a) adjustment period is

The corporation should receive a notice

less-than-20%-owned foreign

generally 1 year for a net negative

from the RIC specifying the amount of

corporations and

adjustment and 4 years for a net positive

dividends that qualify for the deduction.

• Qualify for the 70% deduction under

adjustment. However, an IC-DISC may

Report so-called dividends or earnings

section 245(a). To qualify for the 70%

elect to use a 1-year adjustment period if

received from mutual savings banks, etc.,

deduction, the corporation must own at

the net section 481(a) adjustment for the

as interest. Do not treat them as

least 10% of the stock of the foreign

change is less than $25,000. The

dividends.

corporation by vote and value.

IC-DISC must complete the appropriate

lines of Form 3115 to make the election.

Line 2, Column (a)

Line 7, Column (a)

Include any net positive section 481(a)

Enter on line 2:

Enter the U.S.-source portion of dividends

adjustment on page 2, Schedule B, line 2j

• Dividends (except those received on

that are received from

or 3f (depending on whether the

debt-financed stock acquired after July

20%-or-more-owned foreign corporations

inventory, when sold, will generate

18, 1984) that are received from

and that qualify for the 80% deduction

qualified export receipts). If the net

20%-or-more-owned domestic

under section 245(a).

section 481(a) adjustment is negative,

corporations subject to income tax and

report it on page 3, Schedule E, line 2g.

Line 8, Column (a)

that are eligible for the 80% deduction

Line 3b. Enter receipts from selling under section 243(c) and Enter dividends received from wholly

products subsidized under a U.S.

• Taxable distributions from an IC-DISC owned foreign subsidiaries that are

program if they have been designated as or former DISC that are considered eligible for the 100% deduction under

excluded receipts. eligible for the 80% deduction. section 245(b).

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Page 8 of 14 Instructions for Form 1120-IC-DISC 16:24 - 30-MAR-2009

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In general, the deduction under section • Dividends (other than capital gain IC-DISCs subject to the section 263A

245(b) applies to dividends paid out of the distributions) received from a real estate uniform capitalization rules are required to

earnings and profits of a foreign investment trust that, for the tax year of capitalize:

corporation for a tax year during which: the trust in which the dividends are paid,

1. Direct costs and

qualifies under sections 856 through 860.

• All of its outstanding stock is owned

2. An allocable part of most indirect

• Dividends not eligible for a

(directly or indirectly) by the domestic

costs (including taxes) that (a) benefit the

dividends-received deduction, which

corporation receiving the dividends and

assets produced or acquired for resale or

include the following:

• All of its gross income from all sources

(b) are incurred by reason of the

is effectively connected with the conduct

1. Dividends received on any share of performance of production or resale

of a trade or business within the United

stock held for less than 46 days during activities.

States.

the 91-day period beginning 45 days

For inventory, some of the indirect

before the ex-dividend date. When

Line 9, Column (c)

expenses that must be capitalized are:

counting the number of days the

• Administration expenses,

Generally, line 9, column (c), may not

corporation held the stock, you may not

• Taxes,

exceed the amount from the worksheet

count certain days during which the

• Depreciation,

below. However, in a year in which an

corporation’s risk of loss was diminished.

• Insurance,

NOL occurs, this limitation does not apply

See section 246(c)(4) and Regulations

• Compensation paid to officers

even if the loss is created by the

section 1.246-5 for more details.

attributable to services,

dividends-received deduction. See

2. Dividends attributable to periods

• Rework labor, and

sections 172(d) and 246(b).

totaling more than 366 days that the

• Contributions to pension, stock bonus,

IC-DISC received on any share of

and certain profit-sharing, annuity, or

preferred stock held for less than 91 days

Line 9, Column (c) Worksheet

deferred compensation plans.

during the 181-day period that began 90

days before the ex-dividend date. When

Regulations section 1.263A-1(e)(3)

1. Refigure line 5, page 1, Form

counting the number of days the IC-DISC

specifies other indirect costs that relate to

1120-IC-DISC, without any

held the stock, you may not count certain

production or resale activities that must

adjustment under section 1059

days during which the IC-DISC’s risk of

be capitalized and those that may be

and without any capital loss

loss was diminished. See section

currently deductible.

carryback to the tax year under

246(c)(4) and Regulations section

section 1212(a)(1) .........

Interest expense paid or incurred

1.246-5 for more details. Preferred

2. Multiply line 1 by 80% (.80) . . .

during the production period of

3. Add lines 2, 5, 7, and 8, column

dividends attributable to periods totaling

designated property must be capitalized

(c), and the part of the

less than 367 days are subject to the

and is governed by special rules. For

deduction on line 3, column (c),

46-day holding period rule above.

more details, see Regulations sections

that is attributable to dividends

3. Dividends on any share of stock to

1.263A-8 through 1.263A-15.

received from

the extent the IC-DISC is under an

The costs required to be capitalized

20%-or-more-owned

obligation (including a short sale) to make

under section 263A are not deductible

corporations .............

related payments with respect to positions

4. Enter the smaller of line 2 or until the property (to which the costs

in substantially similar or related property.

line 3. If line 3 is larger than line

relate) is sold, used, or otherwise

• Any other taxable dividend income not

2, do not complete the rest of

disposed of by the corporation.

properly reported elsewhere on Schedule

this worksheet. Instead, enter

Exceptions. Section 263A does not

the amount from line 4 in the

apply to:

margin next to line 9 of

Line 15, Column (a)

• Personal property acquired for resale if

Schedule C and on line 6b,

the IC-DISC’s average annual gross

Qualified dividends are dividends that

page 1, Form 1120-IC-DISC . .

receipts for the 3 prior tax years were $10

qualify as qualified export receipts. They

5. Enter the total amount of

million or less.

include all dividends (or amounts)

dividends received from

• Inventoriable items accounted for in the

includible in gross income (under section

20%-or-more-owned

same manner as materials and supplies

951) that are attributable to stock of

corporations that are included

that are not incidental. See Cost of Goods

related foreign export corporations. See

on lines 2, 3, 5, 7, and 8 of

Sold on page 5 for details.

Qualified export receipts on page 3 and A

column (a) ..............

6. Subtract line 5 from line 1 .... related foreign export corporation on page

For more details on the uniform

7. Multiply line 6 by 70% (.70) . . .

3 for more details.

capitalization rules, see Regulations

8. Subtract line 3 above from

sections 1.263A-1 through 1.263A-3.

column (c) of line 9 ........

Schedule E

Transactions between related

9. Enter the smaller of line 7 or

taxpayers. Generally, an accrual basis

line 8 .................

Deductions

taxpayer may only deduct business

10. Dividends-received

expenses and interest owed to a related

deduction after limitation.

Limitations on Deductions

party in the year the payment is included

Add lines 4 and 9. (If this is less

in the income of the related party. See

than line 9 of Schedule C, enter Section 263A uniform capitalization

sections 163(e)(3), 163(j), and 267 for

the smaller amount on line 6b,

rules. The uniform capitalization rules of

page 1, Form 1120-IC-DISC,

limitations on deductions for unpaid

section 263A generally require

and in the margin next to line 9

interest and expenses.

corporations to capitalize, or include in

of Schedule C.) ..........

inventory, certain costs incurred in

Corporations use Form 8926,

connection with:

Disqualified Corporate Interest Expense

• Personal property (tangible and certain

Line 13, Column (a)

Under Section 163(j) and Related

intangible property) acquired for resale.

Information, to figure the amount of any

Include the following:

• The production of real property and

corporate interest disallowed by section

• Dividends (other than capital gain

tangible personal property by a

163(j).

distributions reported on Schedule D

corporation for use in its trade or business

(Form 1120) and exempt-interest

Golden parachute payments. A portion

or in an activity engaged in for profit.

dividends) that are received from RICs

of the payments made by a corporation to

and that are not subject to the 70%

Tangible personal property produced key personnel that exceeds their usual

deduction.

by a corporation includes a film, sound compensation may not be deductible.

• Dividends from tax-exempt recording, videotape, book, or similar This occurs when the corporation has an

organizations. property. agreement (golden parachute) with these

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key employees to pay them these excess and wages deductible elsewhere on the

Line 2c. Interest

amounts if control of the corporation return, such as amounts included in

Do not deduct the following interest:

changes. See section 280G and officers’ compensation, cost of goods

• Interest on indebtedness incurred or

Regulations section 1.280G-1. Also, see sold, elective contributions to a section

continued to purchase or carry obligations

the instructions for line 1i. 401(k) cash or deferred arrangement, or

if the interest is wholly exempt from

amounts contributed under a salary

income tax. For exceptions, see section

Business start-up and organizational

reduction SEP agreement or a SIMPLE

265(b).

costs. Business start-up and

IRA plan.

• For cash basis taxpayers, prepaid

organizational costs must be capitalized

interest allocable to years following the

unless an election is made to deduct or

If the corporation provided taxable

current tax year (e.g., a cash basis

amortize them. The following rules apply

fringe benefits to its employees,

calendar year taxpayer who in the current

separately to each category of costs.

such as personal use of a car, do

CAUTION

tax year prepaid interest allocable to any

• The IC-DISC may elect to deduct up to

not deduct as wages the amount

period after the current tax year may

$5,000 of such costs for the year the

allocated for depreciation and other

deduct only the amount allocable to the

IC-DISC begins business operations.

expenses claimed on lines 1c and 1m.

current tax year).

• The $5,000 deduction is reduced (but

• Interest on debt allocable to the

Line 1h. Freight

not below zero) by the amount the total

production of designated property by a

costs exceed $50,000. If the total costs

Enter 50% of the freight expenses (except

corporation for its own use. The

are $55,000 or more, the deduction is

insurance) for shipping export property

corporation must capitalize this interest.

reduced to zero.

aboard U.S. flagships and U.S.-owned

Also capitalize any interest on debt

• If the election is made, any costs that

and U.S.-operated aircraft in those cases

allocable to an asset used to produce the

are not deductible must be amortized

where you are not required to use U.S.

property. See section 263A(f) and

ratably over a 180-month period

ships or aircraft by law or regulations.

Regulations sections 1.263A-8 through

beginning with the month the IC-DISC

1.263A-15 for definitions and more

begins business operations. For costs

Line 1i. Compensation of Officers

information.

paid or incurred before October 23, 2004,

Enter deductible officers’ compensation

the IC-DISC may elect to amortize the

on line 1i. Attach a schedule showing the

Special rules apply to:

costs over a period of 60 months or more.

name, social security number, and

• Disqualified interest on certain

amount of compensation paid to all

For more information, see Pub. 535,

indebtedness under section 163(j). See

officers. Do not include compensation

Business Expenses. For more details on

Form 8926, Disqualified Corporate

deductible elsewhere on the return, such

the election for business start-up costs,

Interest Expense Under Section 163(j)

as amounts included in cost of goods

see section 195. For more details on the

and Related Information, and the related

sold, elective contributions to a section

election for organizational costs, see

instructions.

401(k) cash or deferred arrangement, or

section 248.

• Forgone interest on certain

amounts contributed under a salary

below-market-rate loans (see section

Attach any statement required by

reduction SEP agreement or a SIMPLE

7872).

Regulations section 1.195-1(b) or

IRA plan. See the Instructions for Form

• Original issue discount on certain

1.248-1(c). Report the deductible amount

1120 for more information on officers’

high-yield discount obligations (See

of these costs and any amortization on

compensation, including any special rules

section 163(e) to figure the disqualified

line 2g of Schedule E. For amortization

and limitations that may apply.

portion.).

that begins during the current tax year,

The IC-DISC determines who is an

• Interest which is allocable to

complete and attach Form 4562.

officer under the laws of the state where it

unborrowed policy cash values of life

Limitations on deductions related to is incorporated.

insurance, endowment, or annuity

property leased to tax-exempt entities.

contracts issued after June 8, 1997. See

Line 1m. Other Export Promotion

If an IC-DISC leases property to a

section 264(f). Attach a statement

Expenses

governmental or other tax-exempt entity,

showing the computation of the

it may not claim deductions related to the

deduction.

Enter any other allowable export

property to the extent that they exceed

promotion expenses not claimed

Line 2d. Charitable Contributions

the IC-DISC’s income from the lease

elsewhere on the return.

payments (tax exempt use loss). Amounts

For more information on charitable

Note. Do not deduct fines or penalties

disallowed may be carried over to the

contributions, including substantiation and

imposed on the IC-DISC.

next tax year and treated as a deduction

recordkeeping requirements, see section

with respect to the property for that tax

170 and the related regulations and Pub.

Line 2b. Taxes and Licenses

year. See section 470 for more details

526, Charitable Contributions. For

Enter taxes paid or accrued during the tax

and exceptions.

limitations on deduction and other special

year, but do not include the following:

rules that apply to corporations, see the

Contributions. See the Instructions for

Instructions for Form 1120 and Pub. 542.

• Taxes not imposed on the corporation.

Form 1120 and Pub. 542 for limitations

• Taxes, including state or local sales

that apply to contributions.

Line 2e. Freight

taxes, that are paid or incurred in

connection with an acquisition or

Enter freight expense not deducted on

Line 1. Export Promotion

disposition of property (these taxes must

line 1h as export promotion expense.

Expenses

be treated as part of the cost of the

Enter export promotion expenses on lines

Line 2g. Other Expenses

acquired property or, in the case of a

1a through 1m. Export promotion

disposition, as a reduction in the amount

Enter any other allowable deduction not

expenses are an IC-DISC’s ordinary and

realized on the disposition).

claimed on line 1 or lines 2a through 2f.

necessary expenses paid or incurred to

• Taxes assessed against local benefits

obtain qualified export receipts. Do not

The IC-DISC may have to report a

that increase the value of the property

include income taxes. Enter on lines 2a

negative section 481(a) adjustment on

assessed (such as for paving, etc.).

through 2g any part of an expense not

line 2g. See Section 481(a) adjustment on

• Taxes deducted elsewhere on the

incurred to obtain qualified export

page 7 for additional information.

return, such as those reflected in cost of

receipts.

goods sold.

Generally, a deduction may not be

Line 1d. Salaries and Wages.

See section 164(d) for apportionment taken for any amount that is allocable to a

Enter the total salaries and wages paid of taxes on real property between seller class of exempt income. See section

for the tax year. Do not include salaries and purchaser. 265(b) for exceptions.

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Note. Do not deduct fines or penalties partnerships, S corporations, trusts, and

Line 10. International Boycott

paid to a government for violating any estates.

Income

law.

An IC-DISC is deemed to distribute any

Part II—Section 995(b)(1)(E)

income that resulted from cooperating

Taxable Income

For more information on other

with an international boycott (section

deductions that may apply to

Generally, any taxable income of the

995(b)(1)(F)(ii)). See Form 5713 to figure

corporations, see Pub. 535.

IC-DISC attributable to qualified export

this deemed distribution and for reporting

receipts that exceed $10 million will be

requirements for any IC-DISC with

deemed distributed.

operations related to a boycotting country.

Schedule J

Line 1. Export Receipts

Line 11. Illegal Bribes, etc.

Deemed and Actual

If there were no commission sales,

Distributions and Deferred

An IC-DISC is deemed to distribute the

leases, rentals, or services for the tax

amount of any illegal payments, such as

DISC Income for the Tax Year

year, enter on line 1, Part II, the total of

bribes or kickbacks, that it pays, directly

lines 1c and 2k, column (e), Schedule B.

or indirectly, to government officials,

Part I—Deemed Distributions

If there were commission sales,

employees, or agents (section

Under Section 995(b)(1)

leases, rentals, or services for the tax

995(b)(1)(F)(iii)).

year, the total qualified export receipts to

Line 2. Recognized Gain on

Line 14. Earnings and Profits

be entered on line 1, Part II, are figured

Section 995(b)(1)(B) Property

as follows (section 993(f)):

Attach a computation showing the

Enter gain recognized during the tax year

earnings and profits for the tax year. See

on the sale or exchange of property, other

1. Add lines 1c and 2k, column (b),

section 312 for rules on figuring earnings

than property which in the hands of the

Schedule B ...............

and profits for the purpose of the section

IC-DISC was a qualified export asset,

2. Add lines 1c and 2k, column (d),

995(b)(1) limitation.

previously transferred to the IC-DISC in a

Schedule B ...............

3. Add lines 1 and 2. Enter on line

transaction in which the transferor

Line 17. Foreign Investment

1, Part II, Schedule J ........

realized gain but did not recognize the

Attributable to Producer Loans

gain in whole or in part. See section

Line 17a. For shareholders other than

Line 3. Controlled Group

995(b)(1)(B). Show the computation of

C corporations. To figure the amount

the gain on a separate schedule. Include

Allocation

for line 17a, attach a computation

no more of the IC-DISC’s gain than the

If the IC-DISC is a member of a controlled

showing (1) the IC-DISC’s foreign

amount of gain the transferor did not

group (as defined in section 993(a)(3))

investment in producer’s loans during the

recognize on the earlier transfer.

that includes more than one IC-DISC,

tax year; (2) accumulated earnings and

only one $10 million limit is allowed to the

profits (including earnings and profits for

Line 3. Recognized Gain on

group. If an allocation is required, a

the current tax year) minus the amount on

Section 995(b)(1)(C) Property

statement showing each member’s

line 15, Part I; and (3) accumulated

portion of the $10 million limit must be

Enter gain recognized on the sale or

IC-DISC income. Enter the smallest of

attached to Form 1120-IC-DISC. See

exchange of property described in section

these amounts (but not less than zero) on

Proposed Regulations section 1.995-8(f)

995(b)(1)(C). Show the computation of

line 17a.

for details.

the gain on a separate schedule. Do not

Line 17b. For C corporation

include any gain included in the

Lines 4 and 5. Proration of $10

shareholders. To figure the amount for

computation of line 2. Include only the

Million Limit

line 17b, attach a computation showing

amount of the IC-DISC’s gain that the

(1) the IC-DISC’s foreign investment in

The $10 million limit (or the controlled

transferor did not recognize on the earlier

producer’s loans during the tax year; (2)

group member’s share) is prorated on a

transfer and that would have been treated

accumulated earnings and profits

daily basis. Thus, for example, if, for its

as ordinary income if the property had

(including earnings and profits for the

2007 calendar tax year, an IC-DISC has a

been sold or exchanged rather than

current tax year) minus the amount on

short tax year of 73 days, and it is not a

transferred to the IC-DISC. Do not include

line 16, Part I; and (3) accumulated

member of a controlled group, the limit

gain on the sale or exchange of IC-DISC

IC-DISC income. Enter the smallest of

that would be entered on line 5 of Part II

stock-in-trade or other property that either

these amounts (but not less than zero) on

is $2,000,000 (73/365 times $10 million).

would be included in inventory if on hand

line 17b.

at the end of the tax year or is held

Line 7. Taxable Income

primarily for sale in the normal course of

For purposes of lines 17a and 17b,

Enter the taxable income attributable to

business.

foreign investment in producer’s loans is

line 6, qualified export receipts. The

the smallest of (1) the net increase in

IC-DISC may select the qualified export

Line 4. Income Attributable to

foreign assets by members of the

receipts to which the line 5 limitation is

controlled group (defined in section

Military Property

allocated.

993(a)(3)) to which the IC-DISC belongs;

Enter 50% of taxable income attributable

See Proposed Regulations section

(2) the actual foreign investment by the

to military property (section 995(b)(1)(D)).

1.995-8 for details on determining the

group’s domestic members; or (3) the

Show the computation of this income. To

IC-DISC’s taxable income attributable to

IC-DISC’s outstanding producer’s loans to

figure taxable income attributable to

qualified export receipts in excess of the

members of the controlled group.

military property, use the gross income

$10 million amount. Special rules are

attributable to military property for the

Net increase in foreign assets and

provided for allocating the taxable income

year and the deductions properly

actual foreign investment are defined in

attributable to any related and subsidiary

allocated to that income. See Regulations

sections 995(d)(2) and (3).

services, and for the ratable allocation of

section 1.995-6.

the taxable income attributable to the first

See Regulations section 1.995-5 for

transaction selected by the IC-DISC that

additional information on computing

Line 9. Deemed Distributions to C

exceeds the $10 million amount.

foreign investment attributable to

Corporations

Deductions must be allocated and

producer’s loans.

Line 9 provides for the computation of the apportioned according to the rules of

Lines 20 and 21. The percentages on

one-seventeenth deemed distribution of Regulations section 1.861-8. The

lines 20 and 21 must add up to 100%.

section 995(b)(1)(F)(i). Line 9 only applies selection of the excess receipts by the

to shareholders of the IC-DISC that are C Line 22. Allocate the line 22 amount to IC-DISC is intended to permit the

corporations. shareholders that are individuals, IC-DISC to allocate the $10 million

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limitation to the qualified export receipts pre-1985 DISC income and identify it as prior revocation of the DISC election or

of those transactions occurring during the such. Do not include distributions of disqualification of the DISC. For more

tax year that permit the greatest amount pre-1985 DISC income that are made details on these distributions, see

of taxable income to be allocated to the under section 995(b)(2) because of prior Temporary Regulations section

IC-DISC under the intercompany pricing year revocations or disqualifications. 1.921-1T(a)(7).

rules of section 994.

Part V—Deferred DISC Income

Line 13. Accumulated IC-DISC

To avoid double counting of the

Income

Under Section 995(f)(3)

deemed distribution, if an amount of

Accumulated IC-DISC income (for periods

In general, deferred DISC income is:

taxable income for the tax year

after 1984) is accounted for on line 13 of

attributable to excess qualified export

1. Accumulated IC-DISC income (for

Schedule L. The balance of this account

receipts is also deemed distributed under

periods after 1984) of the IC-DISC as of

is used in figuring deferred DISC income

either line 1, 2, 3, or 4 of Part I, such

the close of the computation year, over

in Part V of Schedule J.

amount of taxable income is only

2. The amount of

includible on that line of Part I, and must

distributions-in-excess-of-income for the

Schedule N

be subtracted from the amount otherwise

tax year of the IC-DISC following the

reportable on line 7 of Part II and carried

computation year.

Export Gross Receipts

to line 5 of Part I. See Proposed

For purposes of item 2 above,

of the IC-DISC and Related U.S.

Regulations section 1.995-8(d).

distributions-in-excess-of-income means

Persons

After filing the IC-DISC’s current year

the excess (if any) of:

tax return, the allocation of the $10 million

• Actual distributions to shareholders out

Line 1. Product Code and

limitation and the computation of the line

of accumulated IC-DISC income, over

Percentage

7 deemed distribution may be changed by

• The amount of IC-DISC income (as

filing an amended Form 1120-IC-DISC

Enter in line 1a the code number and

defined in section 996(f)(1)) for the tax

only under the conditions specified in

percentage of total export gross receipts

year following the computation year.

Proposed Regulations section (defined below), for the product or service

For purposes of items 1 and 2 above,

that accounts for the largest portion of the

1.995-8(b)(1).

IC-DISC’s export gross receipts. The

see section 995(f) and Proposed

Part III—Deemed Distributions

product codes are on page 14 of these

Regulations section 1.995(f)-1 for a

Under Section 995(b)(2)

instructions. On line 1b enter the same

definition of computation year, examples,

information for the IC-DISC’s next largest

and other details on figuring deferred

If the corporation is a former DISC or a

product or service.

DISC income.

former IC-DISC that revoked IC-DISC

status or lost IC-DISC status for failure to

Example: An IC-DISC has export

The amount on line 3, Part V, is

satisfy one or more of the conditions

gross receipts of $10 million. Selling

allocated to each shareholder on line 10,

specified in section 992(a)(1) for the

agricultural chemicals accounts for $4.5

Part III, of Schedule K (Form

million (45%) of that amount, which is the

current tax year, each shareholder is

1120-IC-DISC).

IC-DISC’s largest product or service. The

deemed to have received a distribution

Shareholders of an IC-DISC must file

IC-DISC should enter “287” (the product

taxable as a dividend on the last day of

Form 8404 if the IC-DISC reports

code for agricultural chemicals) and

the current tax year. The deemed

deferred DISC income on line 10, Part III

“45%” in line 1a.

distribution equals the shareholder’s

of Schedule K.

prorated share of the DISC’s or IC-DISC’s

Selling industrial chemicals accounts

income accumulated during the years just

for $2 million (20% of the $10 million total)

Schedule K

before DISC or IC-DISC status ended.

and is the IC-DISC’s second largest

The shareholder will be deemed to

product or service. The IC-DISC should

Shareholder’s Statement of

enter “281” (the product code for

receive the distribution in equal parts on

IC-DISC Distributions

industrial inorganic and organic

the last day of each of the 10 tax years of

chemicals) and “20%” in line 1b.

the corporation following the year of the

Attach a separate Copy A, Schedule K

termination or disqualification of the

(Form 1120-IC-DISC), to Form

Line 2. Definitions

IC-DISC (but in no case over more than

1120-IC-DISC for each shareholder who

Export gross receipts are receipts from

twice the number of years the corporation

received an actual or deemed distribution

any of the following.

was a DISC or IC-DISC).

during the tax year or to whom the

• Providing engineering or architectural

corporation reported deferred DISC

services for construction projects located

Part IV—Actual Distributions

income for the tax year.

outside the United States.

• Selling for direct use, consumption, or

Line 1. Distributions To Meet

Schedule L

disposition outside the United States,

Qualification Requirements under

property (such as inventory) produced in

Section 992(c)

Balance Sheets per Books

the United States.

If the corporation is required to pay

• Renting this property to unrelated

The balance sheet should agree with the

interest under section 992(c)(2)(B) on the

persons for use outside the United States.

IC-DISC’s books and records. Include

amount of a distribution to meet the

• Providing services involved in such a

certificates of deposits as cash on line 1.

qualification requirements of section

sale or rental.

992(c), report this interest on line 2c,

Line 12. Accumulated Pre-1985

• Providing export management services.

Schedule E. Also include the amount on

DISC Income

For commission sales, export gross

line 1, Part IV of Schedule J and show the

If the corporation was a qualified DISC as

receipts include the total receipts on

computation of the interest on an

of December 31, 1984, the accumulated

which the IC-DISC earned the

attached schedule.

commission.

pre-1985 DISC income will generally be

treated as previously taxed income

Line 4a. Previously Taxed Income

For purposes of line 2, Schedule N

(exempt from tax) when distributed to

only, no reduction is to be made for

Report on line 4a all actual distributions of

DISC shareholders after December 31,

receipts attributable to military property.

previously taxed income. Also, include

1984.

Therefore, an IC-DISC’s export gross

any distributions of pre-1985 accumulated

receipts for purposes of line 2 includes

DISC income that are nontaxable (see the Exception: The exemption does not

the total of the amounts from page 2,

instructions for Schedule L, line 12, apply to distributions of accumulated

Schedule B, columns (b) and (d) of lines

below). Enter on the dotted line to the left pre-1985 DISC income of an IC-DISC or

1c, 2a, 2b, 2c, and 2d.

of the line 4a amount, the dollar amount former DISC that was made taxable

of the distribution that is nontaxable under section 995(b)(2) because of a Related persons are:

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• An individual, partnership, estate, or the IC-DISC with the largest export gross

Schedule O

trust that controls the IC-DISC; receipts should complete columns (b) and

• A corporation that controls the IC-DISC (c). If an IC-DISC acts as a commission

Other Information

or is controlled by it; or agent for a related person, attribute the

Question 6. Boycott of Israel. If

• A corporation controlled by the same total amount of the transaction to the

question 6a, 6b, or 6c is checked “Yes,”

person or persons who control the IC-DISC.

the IC-DISC must file Form 5713 and is

IC-DISC.

Complete column (a) to report the

also deemed to distribute part of its

Control means direct or indirect

IC-DISC’s export gross receipts from all

income. See Form 5713 for more

ownership of more than 50% of the total

sources (including the United States) for

information.

voting power of all classes of stock

the current tax year.

Question 7. Tax-exempt interest.

entitled to vote. See section 993(a)(3).

Column (b). Export gross receipts of

Report any tax-exempt interest received

U.S. person is: related IC-DISCs. Complete column (b)

or accrued. Include any exempt-interest

• A citizen or resident of the United to report related IC-DISCs’ export gross

dividends received as a shareholder in a

States, which includes the receipts from all sources (including the

mutual fund or other regulated investment

Commonwealth of Puerto Rico and United States).

company.

possessions of the United States;

Column (c). Export gross receipts of

• A domestic corporation or partnership;

all other related U.S. persons.

Schedule P

Complete column (c) to report other

• An estate or trust (other than a foreign

related U.S. persons’ export gross

Intercompany Transfer Price or

estate or trust as defined in section

receipts from all sources except the

Commission

7701(a)(31)).

United States.

Complete and attach a separate

Export Gross Receipts

Line 3. Related U.S. Persons

Schedule P (Form 1120-IC-DISC) for

Column (a). All IC-DISCs should Enter on line 3 the name, address, and each transaction or group of transactions

complete column (a) in line 2. If two or identifying number of related U.S. to which you apply the intercompany

more IC-DISCs are related persons, only persons in your controlled group. pricing rules of section 994(a)(1) and (2).

Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws

of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to

allow us to figure and collect the right amount of tax. Section 6109 requires return preparers to provide their identifying numbers on

the return.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their

contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are

confidential, as required by section 6103.

The time needed to complete and file the following forms will vary depending on individual circumstances. The estimated average

times are:

Copying, assembling,

Learning about the law or and sending the form to

Form Recordkeeping the form Preparing the form the IRS

1120-IC-DISC 89 hr., 26 min. 21 hr., 52 min. 39 hr., 12 min. 4 hr., 17 min.

Schedule K 4 hr., 18 min. 47 min. 54 min. — — —

Schedule P 12 hr., 54 min. 1 hr., 35 min. 1 hr., 52 min. — — —

If you have comments concerning the accuracy of these time estimates or suggestions for making these forms simpler, we would

be happy to hear from you. You may write to the Internal Revenue Service, Tax Products Coordinating Committee,

SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, D.C. 20224. Do not send these tax forms to this office.

Instead, see Where To File on page 2.

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Page 13 of 14 Instructions for Form 1120-IC-DISC 16:24 - 30-MAR-2009

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Form 1120-IC-DISC Codes for Principal Business Activity

This list of principal business activities and their associated codes is

designed to classify an enterprise by the type of activity in which it is

engaged to facilitate the administration of the Internal Revenue

Code. These principal business activity codes are based on the

North American Industry Classification System. Certain activities,

such as manufacturing, do not apply to an IC-DISC.

Using the list below, enter on page 1, item B, the code number for

the specific industry group from which the largest percentage of

On page 6, Schedule O, line 1, enter the principal business activity

and principal product or service that account for the largest

percentage of total receipts. For example, if the principal activity is

“Wholesale Trade Durable Goods: Machinery, Equipment, &

Supplies,” the principal product or service may be “Engines and

Turbines.”

Wholesale Trade

Merchandise Wholesalers, Durable

Goods

423100 Motor Vehicle & Motor

Vehicle Parts & Supplies

423200 Furniture & Home Furnishings

423300 Lumber & Other Construction

Materials

423400 Professional & Commercial

Equipment & Supplies

423500 Metal & Mineral (except

Petroleum)

423600 Electrical & Electronic Goods

423700 Hardware, & Plumbing &

Heating Equipment, & Supplies

423800 Machinery, Equipment, &

Supplies

423910 Sporting & Recreational Goods

& Supplies

423920 Toy & Hobby Goods & Supplies

423930 Recyclable Materials

423940 Jewelry, Watch, Precious

Stone, & Precious Metals

423990 Other Miscellaneous Durable

Goods

424400 Grocery & Related Products

424500 Farm Product Raw Materials

424600 Chemical & Allied Products

424700 Petroleum & Petroleum

Products

424800 Beer, Wine, & Distilled

Alcoholic Beverage

424910 Farm Supplies

424920 Book, Periodical, &

Newspapers

424930 Flower, Nursery Stock, &

Florists’ Supplies

424940 Tobacco & Tobacco Products

424950 Paint, Varnish, & Supplies

424990 Other Miscellaneous

Nondurable Goods

Merchandise Wholesalers,

Nondurable Goods

424100 Paper & Paper Products

424210 Drugs & Druggists’ Sundries

424300 Apparel, Piece Goods, &

Notions

Information

Publishing Industries (except

Internet)

511110 Newspaper Publishers

511120 Periodical Publishers

511130 Book Publishers

511140 Directory & Mailing List

Publishers

511190 Other Publishers

511210 Software Publishers

Motion Picture and Sound

Recording Industries

512100 Motion Picture & Video

Industries (except video

rental)

512200 Sound Recording Industries

515100 Radio & Television

Broadcasting

515210 Cable & Other Subscription

Programming

517000 Telecommunications

(including paging, cellular,

satellite, cable & other

program distribution,

resellers, other

telecommunications, &

internet service providers)

Other Information Services

519100 Other Information Services

(including news syndicates,

libraries, internet publishing &

broadcasting)

Rental and Leasing

Rental and Leasing Services

532100 Automotive Equipment Rental

& Leasing

532210 Consumer Electronics &

Appliances Rental

Professional Services

Architectural, Engineering, and

Related Services

541310 Architectural Services

541320 Landscape Architecture

Services

Broadcasting (except Internet)

Code

Schedule P (Form 1120-IC-DISC) Codes for Principal Business Activity

(These codes are used only with Schedule P (Form 1120-IC-DISC)). Using the list below, enter on each Schedule P, the code for the

specific industry group and the product or product line for which the

Schedule P is completed.

Transportation,

Communication, Electric,

Gas, and Sanitary Services

Transportation

4400 Water transportation

4700 Other transportation services

Code

5140 Groceries and related products

5150 Farm-product raw materials

5160 Chemicals and allied products

5170 Petroleum and petroleum

products

5180 Alcoholic beverages

5190 Miscellaneous nondurable

goods

Nondurable

5110 Paper and paper products

5129 Drugs, drug proprietaries, and

druggists’ sundries

5130 Apparel, piece goods, and

notions

Retail Trade

Building materials, hardware, garden

supply, mobile home dealers,

general merchandise, and food

stores

5220 Building materials dealers

5251 Hardware stores

5265 Garden supplies and mobile

home dealers

5300 General merchandise stores

5410 Grocery stores

Automotive dealers and service

stations

5515 Motor vehicle dealers

5541 Gasoline service stations

Finance, Insurance, and Real

Estate

Credit agencies other than banks

6199 Other credit agencies

Business services

7389 Export management services

These codes for the Principal Business Activity are designed to

classify enterprises by the type of activity in which they are engaged

to facilitate the administration of the Internal Revenue Code. Certain

activities such as manufacturing do not apply to an IC-DISC.

Electric, gas, and sanitary services

4910 Electric services

4920 Gas production and distribution

4930 Combination utility services

Wholesale Trade

Durable

5008 Machinery, equipment, and

supplies

5010 Motor vehicles and automotive

equipment

5020 Furniture and home furnishings

5030 Lumber and construction

materials

5040 Sporting, recreational,

photographic, and hobby

goods, toys, and supplies

5050 Metals and minerals, except

petroleum and scrap

5060 Electrical goods

5070 Hardware, plumbing and heating

equipment

5098 Other durable goods

5490 Other food stores

Miscellaneous retail stores

5912 Drug stores and proprietary

stores

5921 Liquor stores

5995 Other miscellaneous retail stores

Services

Auto repair and services;

miscellaneous repair services

7500 Lease or rental of motor

vehicles

Amusement and recreation services

7812 Motion picture production,

distribution, and services

Other services

8911 Architectural and engineering

services

8930 Accounting, auditing, and

bookkeeping

8980 Miscellaneous services

5598 Other automotive dealers

5600 Apparel and accessory stores

5700 Furniture and home furnishings

stores

5800 Eating and drinking places

Telecommunications

Data Processing Services

518210 Data Processing, Hosting, &

Related Services

532220 Formal Wear & Costume

Rental

532230 Video Tape & Disc Rental

532290 Other Consumer Goods

Rental

532310 General Rental Centers

532400 Commercial & Industrial

Machinery & Equipment

Rental & Leasing

541330 Engineering Services

541340 Drafting Services

541350 Building Inspection Services

541360 Geophysical Surveying &

Mapping Services

541370 Surveying & Mapping (except

Geophysical) Services

541380 Testing Laboratories

Other Professional Services

541600 Management Services

total gross receipts is derived. Total receipts means all income (line

1, page 1).

-13-

Page 14 of 14 Instructions for Form 1120-IC-DISC 16:24 - 30-MAR-2009

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Schedule N Product Code System

(These codes are used only with Schedule N, page 6, Form 1120-IC-DISC.)

Using the list below, enter on line 1 of Schedule N the product code number and percent of export gross receipts as explained in

the Specific Instructions.

This product code system is divided into two categories—nonmanufactured product groups and services, and manufactured

product groups.

Code

Nonmanufactured Product Groups and Services

Grains, including soybeans

Vegetables and melons

Fruit and tree nuts

Greenhouse, nursery, and floriculture

Cotton

Other crops (including sugar beets, peanuts,

spices, hops, and vegetable seeds)

Livestock

Poultry and eggs

Fishery products and services (including shellfish)

Fur bearing animals and unfinished hides

Other animal products

Iron ores

Precious metals (including gold and silver)

Other ores

Coal mining products

Secondary petroleum and natural gas products

Nonmetallic mineral products and services

(including limestone, s

ulfur, and fertilizer)

Sand, gravel, and clay

Export management services

Computer software

Motion picture distribution

Engineering and architectural services

Leasing--other property (except aircraft)

Other nonmanufactured products

Manufactured Product Groups

Ordnance and accessories

Guns, howitzers, mortars, and related equipment

Ammunition (except small arms)

Sighting and fire control equipment

Small arms

Small arms ammunition

Other ordnance and accessories

Food and kindred products

Meat products

Dairy products

Fruits, vegetables, and seafood

Grain mill products

Bakery products

Sugar

Confectionery and related products

Beverages

Other food and kindred products

Tobacco products

Cigarettes

Cigars

Tobacco (chewing and smo

king) and snuff

Textile mill products

Broad woven cotton fabrics

Broad woven synthetic fibers and silk fabrics

Broad woven wool fabrics

Narrow fabrics

Knit fabrics

Dyed and finished textiles

Carpets and rugs

Yarns and threads

Other textile goods

Apparel and other finished goods

Men’s and boys’ clothing and furnishings

Women’s, children’s and infants’ clothing and

accessories (including fur goods and millinery)

Footwear (except rubber and leather)

Other apparel and accessories

Lumber and wood products (except furniture)

Logs and log products

Lumber construction materials (including

millwork, veneer, plywood and prefabricated

structural wood products)

Wooden containers

Other lumber and wood products

Furniture and fixtures

Hous

ehold furniture

Office furniture

Public building and related furniture

Other furniture and fixtures

Paper and allied products

Pulp

Newsprint

Business machine paper

Stationery and office supplies (including pens

and pencils)

Paperboard (including containers and boxes)

Paper bags and coated and treated paper

(including wallpaper and gift wrap)

Other paper and allied products

Printed media

Newspapers

Periodicals

Books

Greeting cards

Manifold business forms

Other printed media

Chemicals and allied products

Industrial inorganic and organic chemicals

Plastics materials, synthetic resins, synthetic

rubber, and synthetic fibers

Drugs

Soap, detergents, and cleaning preparations,

perfumes, cosmetics, and toiletries

Paints, varnishe

s, lacquers, enamels, and allied

products

Gum and wood chemicals

Agricultural chemicals

Other chemicals and allied products

Refined petroleum and related products

Refined petroleum

Paving and roofing materials

Other petroleum and related products

Rubber and plastics products

Tires and inner tubes

Rubber footwear

Reclaimed rubber

Fabricated rubber products

Other rubber and plastics products

Leather and leather products

Tanned and finished leather

Industrial leather belting and packing

Boot and shoe cut stock and findings

Leather footwear

Leather gloves and mittens

Leather luggage

Leather handbags and other personal leather

goods

Other leather and leather products

Stone, clay, glass, and concrete products

Flat glass

Glass and glassware, pressed and blown

Glass products, made or purchased glass

Cement, hydraulic

Structural clay product

Pottery and related products

Concrete, gypsum, and plaster products

Cut stone and stone products

Abrasive, asbestos, and other nonmetallic mineral

products

Primary and secondary nonfabricated metal products

Iron and steel products

Nonferrous metal products

Other primary and secondary nonfabricated metal

products

Fabricated metal products (except ordnance,

machinery and transportation)

Metal cans

Cutlery, hand tools, and general hardware

Heating apparatus (except electric) and plumbing

fixtures

Fabricated structural metal products

Screw machine products and bolts, nuts, screws,

rivets, and washers

Metal stampings

Coated and engraved metal products

Other fabricated metal products

Machinery (except electrical and electronic)

Engines and turbines

Farm machinery and equipment

Construction, mining, and materials handling

machinery and equipment

Metalworking machinery and equipment

Special industry machinery (except metalworking

machinery)

General industrial machinery and equipment

Service industry machinery

Other machinery (except electrical and electronic)

Electrical and electronic machinery, equipment, and

supplies

Electric power transmission and distribution

equipment (including transformers, motors and

generators)

Electrical office equipment (including

photocopying machines and calculators)

Household appliances

Electric lighting and wiring equipment

Audio and video equipment (except

communication types)

Communication equipment

Semiconductors, capacitors, resistors, and other

electronic components

Computer and peripheral equipment

Other electrical and electronic machinery,

equipment, and supplies

Tran

sportation equipment

Motor vehicles and motor vehicle equipment

Aircraft and aircraft parts and equipment

Leased aircraft

Ships and nautical equipment

Railroad equipment

Motorcycles, bicycles, and parts

Tanks and tank components

Other transportation equipment

Professional, scientific, and controlling instruments;

photographic and optical goods; watches and clocks

Engineering, laboratory, and scientific and

research instruments and associated equipment

Instruments for measuring, controlling, and

indicating physical characteristics

Optical instruments, lenses, binoculars,

microscopes, telescope

s, and prisms

Surgical, medical, and dental instruments and

supplies

Ophthalmic goods

Photographic equipment and supplies

Watches and clocks

Other manufactured products

Jewelry, silverware, and plated ware

Musical instruments

Toys, amusement, sporting, and athletic goods

Artists’ materials

Costume jewelry, costume novelties, buttons,

and other notions (except precious metal)

Other manufactured products

011

012

013

014

015

019

021

022

023

024

029

101

102

103

110

130

147

148

730

737

780

850

988

990

191

192

194

195

196

199

201

202

203

204

205

206

207

208

209

211

212

213

221

222

223

224

225

226

227

228

229

231

233

238

239

241

243

244

249

Code

251

252

253

259

261

262

263

264

265

266

269

271

272

273

274

275

279

281

282

283

284

285

286

287

289

291

295

299

301

302

303

306

309

311

312

313

314

315

316

317

319

321

322

323

324

325

326

327

328

329

331

332

339

Code

341

342

343

344

345

346

347

349

351

352

353

354

355

356

357

359

361

362

363

364

365

366

367

368

369

371

372

373

374

375

376

378

379

381

382

383

384

385

386

387

391

393

394

395

396

399

-14-