Instructions For Form 1120-Ic-Disc - 2004 (Page 6 of 15) in pdf

Line 8. Refundable Credit for

section 263A costs are generally those

allocable to goods on hand at the inventory

costs, other than interest, that were not

date.

Federal Tax Paid on Fuels

capitalized under the IC-DISC’s method of

Inventory may be valued below cost

Enter the credit from Form 4136.

accounting immediately prior to the effective

when the merchandise is unsalable at

date of section 263A but are now required to

Schedule A

normal prices or unusable in the normal way

be capitalized under section 263A. For

because the goods are subnormal due to

details, see Regulations section

damage, imperfections, shopwear, etc.,

Cost of Goods Sold

1.263A-2(b).

within the meaning of Regulations section

Generally, inventories are required at the

For IC-DISCs that have elected the

1.471-2(c). The goods may be valued at the

beginning and end of each tax year if the

simplified resale method, additional section

current bona fide selling price, minus direct

purchase or sale of merchandise is an

263A costs are generally those costs

cost of disposition (but not less than scrap

income-producing factor. See Regulations

incurred with respect to the following

value) if such a price can be established.

section 1.471-1.

categories.

If this is the first year the Last-in,

•

Off-site storage or warehousing.

However, if the IC-DISC is a qualifying

First-out (LIFO) inventory method was either

•

Purchasing; handling, such as

taxpayer or a qualifying small business

adopted or extended to inventory goods not

processing, assembling, repackaging, and

taxpayer, it may adopt or change its

previously valued under the LIFO method

transporting.

accounting method to account for

provided in section 472, attach Form 970,

•

General and administrative costs (mixed

inventoriable items in the same manner as

Application To Use LIFO Inventory Method,

service costs).

materials and supplies that are not

or a statement with the information required

incidental.

For details, see Regulations section

by Form 970. Also check the LIFO box on

1.263A-3(d).

line 9c. On line 9d, enter the amount or the

A qualifying taxpayer is a taxpayer that,

percent of total closing inventories covered

for each prior tax year ending after

Enter on line 4 the balance of section

under section 472. Estimates are

December 16, 1998, has average annual

263A costs paid or incurred during the tax

acceptable.

gross receipts of $1 million or less for the

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

3-tax-year period ending with that prior tax

If the IC-DISC changed or extended its

Line 5. Other Costs

year.

inventory method to LIFO and had to write

Enter on line 5 any costs paid or incurred

up the opening inventory to cost in the year

A qualifying small business taxpayer

during the tax year not entered on lines 2

of election, report the effect of the write-up

is a taxpayer (a) that, for each prior tax year

through 4.

as other income (on page 2, Schedule B,

ending on or after December 31, 2000, has

line 2j or 3f), proportionately over a 3-year

average annual gross receipts of $10 million

Line 7. Inventory at End of Year

period that begins with the year of the LIFO

or less for the 3-tax-year period ending with

See Regulations sections 1.263A-1 through

election (section 472(d)).

that prior tax year and (b) whose principal

1.263A-3 for details on figuring the amount

business activity is not an ineligible activity.

For more information on inventory

of additional section 263A costs to be

valuation methods, see Pub. 538.

Under this accounting method, inventory

included in ending inventory. If the IC-DISC

costs for merchandise purchased for resale

accounts for inventoriable items in the same

Schedule B

are deductible in the year the merchandise

manner as materials and supplies that are

is sold (but not before the year the IC-DISC

not incidental, enter on line 7 the portion of

paid for the merchandise, if it is also using

its merchandise purchased for resale that is

Gross Income

the cash method). For additional guidance

included on line 6 and was not sold during

If an income item falls into two or more

on this method of accounting for

the year.

categories, report each part on the

inventoriable items, see Pub. 538.

applicable line. For example, if interest

Lines 9a through 9f. Inventory

Enter amounts paid for merchandise

income consists of qualified interest from a

Valuation Methods

during the tax year on line 2. The amount

foreign international sales corporation and

Inventories can be valued at:

the IC-DISC can deduct for the tax year is

nonqualifying interest from a domestic

•

Cost;

figured on line 8.

obligation, enter the qualified interest on an

•

Cost or market value (whichever is lower);

attached schedule for line 2g and the

All filers not using the cash method of

nonqualifying interest on an attached

accounting should see Section 263A

•

Any other method approved by the IRS

schedule for line 3f.

uniform capitalization rules on page 8 before

that conforms to the requirements of the

completing Schedule A.

For gain from selling qualified export

applicable regulations cited below.

assets, attach a separate schedule in

If the IC-DISC uses intercompany pricing

However, if the IC-DISC is using the

addition to the forms required for lines 2h

rules (for purchases from a related supplier),

cash method of accounting, it is required to

and 2i.

use the transfer price figured in Part II of

use cost.

Schedule P (Form 1120-IC-DISC).

Nonaccrual experience method.

IC-DISCs that account for inventoriable

Corporations that qualify to use the

If the IC-DISC acts as another person’s

items in the same manner as materials and

nonaccrual experience method (described

commission agent on a sale, do not enter

supplies that are not incidental may

on page 3), should attach a schedule

any amount in Schedule A for the sale. See

currently deduct expenditures for direct

showing total gross receipts, the amount not

Schedule P (Form 1120-IC-DISC).

labor and all indirect costs that would

accrued as a result of the application of

Line 1. Inventory at Beginning

otherwise be included in inventory costs.

section 448(d)(5), and the net amount

of Year

The average cost (rolling average)

accrued. Enter the amount on the applicable

method of valuing inventories generally

line of Schedule B.

If the IC-DISC is changing its method of

does not conform to the requirements of the

accounting for the current tax year, it must

Commissions: Special Rule

regulations. See Rev. Rul. 71-234, 1971-1

refigure last year’s closing inventory using

Note. “United States,” as used in the

C.B. 148.

the new method of accounting and enter the

following instructions, includes Puerto Rico

result on line 1. If there is a difference

IC-DISCs that use erroneous valuation

and U.S. possessions, as well as the 50

between last year’s closing inventory and

methods must change to a method

states and the District of Columbia.

the refigured amount, attach an explanation

permitted for Federal income tax purposes.

and take it into account when figuring the

If the IC-DISC received commissions on

Use Form 3115 to make this change.

IC-DISC’s section 481(a) adjustment

selling or renting property or furnishing

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

(explained on page 3).

services, list in column (b) the gross receipts

valuing inventories. Under lower of cost or

from the sales, rentals, or services on which

market, the term “market” (for normal goods)

Line 4. Additional Section 263A

the commissions arose, and in column (c),

means the current bid price prevailing on the

Costs

list the commissions earned. In column (d)

inventory valuation date for the particular

An entry is required on this line only for

report receipts from noncommissioned sales

merchandise in the volume usually

IC-DISCs that have elected a simplified

or rentals of property or furnishing of

purchased by the taxpayer. If section 263A

method of accounting.

services, as well as all other receipts.

applies to the taxpayer, the basic elements

For IC-DISCs that have elected the

of cost must reflect the current bid price of

For purposes of completing line 1a and

simplified production method, additional

all direct costs and all indirect costs properly

line 1b, related purchasers are members of

-6-

Instructions for Form 1120-IC-DISC

Instructions For Form 1120-Ic-Disc - 2004 Page 6

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