Instructions For Form 1120-Ic-Disc - 2004 (Page 9 of 15) in pdf

Line 2b. Taxes and Licenses

For more details on the uniform

you are not required to use U.S. ships or

capitalization rules, see Regulations

aircraft by law or regulations.

Enter taxes paid or accrued during the tax

sections 1.263A-1 through 1.263A-3.

year, but do not include the following:

Line 1i. Compensation of Officers

•

Transactions between related taxpayers.

Taxes not imposed on the corporation.

Attach a schedule showing the name, social

•

Generally, an accrual basis taxpayer may

Taxes, including state or local sales

security number, and amount of

only deduct business expenses and interest

taxes, that are paid or incurred in connection

compensation paid to all officers. Do not

owed to a related party in the year the

with an acquisition or disposition of property

include compensation deductible elsewhere

payment is included in the income of the

(these taxes must be treated as part of the

on the return, such as amounts included in

related party. See sections 163(e)(3), 163(j),

cost of the acquired property or, in the case

cost of goods sold, elective contributions to

and 267 for limitations on deductions for

of a disposition, as a reduction in the

a section 401(k) cash or deferred

unpaid interest and expenses.

amount realized on the disposition).

arrangement, or amounts contributed under

•

Golden parachute payments. A portion of

Taxes assessed against local benefits

a salary reduction SEP agreement or a

the payments made by a corporation to key

that increase the value of the property

SIMPLE IRA plan.

personnel that exceeds their usual

assessed (such as for paving, etc.).

•

The IC-DISC determines who is an

Taxes deducted elsewhere on the return,

compensation may not be deductible. This

officer under the laws of the state where it is

occurs when the corporation has an

such as those reflected in cost of goods

incorporated.

agreement (golden parachute) with these

sold.

key employees to pay them these excess

See section 164(d) for apportionment of

Line 1j. Repairs and Maintenance

amounts if control of the corporation

taxes on real property between seller and

Enter the cost of incidental repairs and

changes. See section 280G.

purchaser.

maintenance not claimed elsewhere on the

Business start-up and organizational

Line 2c. Interest

return, such as labor and supplies, that do

costs. Business start-up and organizational

not add to the value of the property or

Do not deduct the following interest:

costs must be capitalized unless an election

•

appreciably prolong its life. New buildings,

Interest on indebtedness incurred or

is made to deduct or amortize them. For

machinery, or permanent improvements that

continued to purchase or carry obligations if

costs paid or incurred before October 23,

increase the value of the property are not

the interest is wholly exempt from income

2004, the IC-DISC must capitalize them

deductible. They must be depreciated or

tax. For exceptions, see section 265(b).

unless it elects to amortize these costs over

•

amortized.

For cash basis taxpayers, prepaid interest

a period of 60 months or more. For costs

allocable to years following the current tax

paid or incurred after October 22, 2004, the

Line 1k. Pension, Profit-sharing,

year (e.g., a cash basis calendar year

following rules apply separately to each

etc., Plans

taxpayer who in 2004 prepaid interest

category of costs.

•

Enter the deduction for contributions to

allocable to any period after 2004 can

The IC-DISC can elect to deduct up to

qualified pension, profit-sharing, or other

deduct only the amount allocable to 2004).

$5,000 of such costs for the year the

•

funded deferred compensation plans.

Interest on debt allocable to the

IC-DISC begins business operations.

•

Employers who maintain such a plan

production of designated property by a

The $5,000 deduction is reduced (but not

generally must file one of the forms listed

corporation for its own use. The corporation

below zero) by the amount the total costs

below, even if the plan is not a qualified plan

must capitalize this interest. Also capitalize

exceed $50,000. If the total costs are

under the Internal Revenue Code. The filing

any interest on debt allocable to an asset

$55,000 or more, the deduction is reduced

requirement applies even if the IC-DISC

used to produce the property. See section

to zero.

•

does not claim a deduction for the current

263A(f) and Regulations sections 1.263A-8

If the election is made, any costs that are

tax year. There are penalties for failure to

through 1.263A-15 for definitions and more

not deductible must be amortized ratably

file these forms on time and for overstating

information.

over a 180-month period beginning with the

the pension plan deduction. See sections

month the IC-DISC begins business

Special rules apply to:

•

6652(e) and 6662(f).

operations.

Interest on which no tax is imposed (see

section 163(j)).

Form 5500, Annual Return/Report of

For more details on the election for

•

Forgone interest on certain

Employee Benefit Plan. File this form for a

business start-up costs, see section 195 and

below-market-rate loans (see section 7872).

plan that is not a one-participant plan (see

attach the statement required by

•

Original issue discount on certain

below).

Regulations section 1.195-1(b). For more

high-yield discount obligations. (See section

details on the election for organizational

Form 5500-EZ, Annual Return of

163(e) to figure the disqualified portion.)

costs, see section 248 and attach the

•

One-Participant (Owners and Their

Interest which is allocable to unborrowed

statement required by Regulations section

Spouses) Retirement Plan. File this form for

policy cash values of life insurance,

1.248-1(c). Report the deductible amount of

a plan that only covers the owner (or the

endowment, or annuity contracts issued

these costs and any amortization on line 2g

owner and his or her spouse) but only if the

after June 8, 1997. See section 264(f).

of Schedule E. For amortization that begins

owner (or the owner and his or her spouse)

Attach a statement showing the computation

during the 2004 tax year, complete and

owns the entire business.

of the deduction.

attach Form 4562.

Line 1l. Employee Benefit

Line 2d. Charitable Contributions

Line 1. Export Promotion

Programs

Enter contributions or gifts paid within the

Expenses

Enter contributions to employee benefit

tax year to or for the use of charitable and

Enter export promotion expenses on lines

programs not claimed elsewhere on the

governmental organizations described in

1a through 1m. Export promotion expenses

return (e.g., insurance, health and welfare

section 170(c) and any unused charitable

are an IC-DISC’s ordinary and necessary

programs, etc.) that are not an incidental

contributions carried over from prior years.

expenses paid or incurred to obtain qualified

part of a pension, profit-sharing, etc., plan

IC-DISCs reporting taxable income on

export receipts. Do not include income

included on line 1k.

the accrual method may elect to treat as

taxes. Enter on lines 2a through 2g any part

paid during the tax year any contributions

Line 1m. Other Export Promotion

of an expense not incurred to obtain

paid by the 15th day of the 3rd month after

qualified export receipts.

Expenses

the end of the tax year if the contributions

Enter any other allowable export promotion

Line 1c. Depreciation

were authorized by the board of directors

expenses not claimed elsewhere on the

during the tax year. Attach a declaration to

Include on line 1c depreciation and the part

return.

the return stating that the resolution

of the cost of certain property that the

authorizing the contributions was adopted

corporation elected to expense under

Note. Do not deduct fines or penalties

by the board of directors during the tax year.

section 179. See Form 4562 and its

imposed on the IC-DISC.

The declaration must include the date the

instructions.

Line 2a. Bad Debts

resolution was adopted.

Line 1h. Freight

The IC-DISC must use the specific

Limitation on deduction. The total amount

Enter 50% of the freight expenses (except

chargeoff method of accounting for bad

claimed may not be more than 10% of

insurance) for shipping export property

debts and may only deduct business bad

taxable income (line 7, page 1) computed

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

debts when they become wholly or partially

without regard to the following:

•

U.S.-operated aircraft in those cases where

worthless.

Any deduction for contributions,

-9-

Instructions for Form 1120-IC-DISC

Instructions For Form 1120-Ic-Disc - 2004 Page 9

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