Instructions For Form 1120-Ic-Disc - 2006 (Page 10 of 16) in pdf

The costs required to be capitalized

that begins during the 2006 tax year,

reduction SEP agreement or a SIMPLE

under section 263A are not deductible

complete and attach Form 4562.

IRA plan.

until the property (to which the costs

Limitations on deductions related to

The IC-DISC determines who is an

relate) is sold, used, or otherwise

property leased to tax-exempt entities.

officer under the laws of the state where it

disposed of by the corporation.

If an IC-DISC leases property to a

is incorporated.

governmental or other tax-exempt entity,

Exceptions. Section 263A does not

Line 1j. Repairs and Maintenance

it may not claim deductions related to the

apply to:

•

Enter the cost of incidental repairs and

property to the extent that they exceed

Personal property acquired for resale if

maintenance not claimed elsewhere on

the IC-DISC’s income from the lease

the IC-DISC’s average annual gross

the return, such as labor and supplies,

payments (tax exempt use loss). Amounts

receipts for the 3 prior tax years were $10

that do not add to the value of the

disallowed may be carried over to the

million or less.

•

property or appreciably prolong its life.

next tax year and treated as a deduction

Inventoriable items accounted for in the

New buildings, machinery, or permanent

with respect to the property for that tax

same manner as materials and supplies

improvements that increase the value of

year. See section 470 for more details

that are not incidental. See Cost of Goods

the property are not deductible. They

and exceptions.

Sold on page 6 for details.

must be depreciated or amortized.

Contributions. See the instructions for

For more details on the uniform

Line 1k. Pension, Profit-sharing,

Line 2d on page 11 for limitations that

capitalization rules, see Regulations

apply to contributions.

etc., Plans

sections 1.263A-1 through 1.263A-3.

Enter the deduction for contributions to

Line 1. Export Promotion

Transactions between related

qualified pension, profit-sharing, or other

Expenses

taxpayers. Generally, an accrual basis

funded deferred compensation plans.

taxpayer may only deduct business

Enter export promotion expenses on lines

Employers who maintain such a plan

expenses and interest owed to a related

1a through 1m. Export promotion

generally must file one of the forms listed

party in the year the payment is included

expenses are an IC-DISC’s ordinary and

below, even if the plan is not a qualified

in the income of the related party. See

necessary expenses paid or incurred to

plan under the Internal Revenue Code.

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

obtain qualified export receipts. Do not

The filing requirement applies even if the

limitations on deductions for unpaid

include income taxes. Enter on lines 2a

IC-DISC does not claim a deduction for

interest and expenses.

through 2g any part of an expense not

the current tax year. There are penalties

incurred to obtain qualified export

Golden parachute payments. A portion

for failure to file these forms on time and

receipts.

of the payments made by a corporation to

for overstating the pension plan

key personnel that exceeds their usual

deduction. See sections 6652(e) and

Line 1c. Depreciation

compensation may not be deductible.

6662(f).

Include on line 1c depreciation and the

This occurs when the corporation has an

Form 5500, Annual Return/Report of

part of the cost of certain property that the

agreement (golden parachute) with these

Employee Benefit Plan. File this form for

corporation elected to expense under

key employees to pay them these excess

a plan that is not a one-participant plan

section 179. See Form 4562 and its

amounts if control of the corporation

(see below).

instructions.

changes. See section 280G and

Form 5500-EZ, Annual Return of

Line 1d. Salaries and Wages.

Regulations section 1.280G-1.

One-Participant (Owners and Their

Enter the total salaries and wages paid

Business start-up and organizational

Spouses) Retirement Plan. File this form

for the tax year. Do not include salaries

costs. Business start-up and

for a plan that only covers the owner (or

and wages deductible elsewhere on the

organizational costs must be capitalized

the owner and his or her spouse) but only

return, such as amounts included in

unless an election is made to deduct or

if the owner (or the owner and his or her

officers’ compensation, cost of goods

amortize them. The IC-DISC may elect to

spouse) owns the entire business.

sold, elective contributions to a section

amortize costs paid or incurred before

Line 1l. Employee Benefit

401(k) cash or deferred arrangement, or

October 23, 2004, over a period of 60

Programs

amounts contributed under a salary

months or more. For costs paid or

reduction SEP agreement or a SIMPLE

incurred after October 22, 2004, the

Enter contributions to employee benefit

IRA plan.

following rules apply separately to each

programs not claimed elsewhere on the

category of costs.

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

If the corporation provided taxable

•

The IC-DISC may elect to deduct up to

programs, etc.) that are not an incidental

fringe benefits to its employees,

$5,000 of such costs for the year the

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

such as personal use of a car, do

CAUTION

IC-DISC begins business operations.

included on line 1k.

not deduct as wages the amount

•

The $5,000 deduction is reduced (but

allocated for depreciation and other

Line 1m. Other Export Promotion

not below zero) by the amount the total

expenses claimed on lines 1c and 1m.

Expenses

costs exceed $50,000. If the total costs

Line 1h. Freight

Enter any other allowable export

are $55,000 or more, the deduction is

promotion expenses not claimed

reduced to zero.

Enter 50% of the freight expenses (except

•

elsewhere on the return.

If the election is made, any costs that

insurance) for shipping export property

are not deductible must be amortized

Note. Do not deduct fines or penalties

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

ratably over a 180-month period

imposed on the IC-DISC.

and U.S.-operated aircraft in those cases

beginning with the month the IC-DISC

where you are not required to use U.S.

Line 2a. Bad Debts

begins business operations.

ships or aircraft by law or regulations.

The IC-DISC must use the specific

For more information, see Pub. 535,

Line 1i. Compensation of Officers

chargeoff method of accounting for bad

Business Expenses. For more details on

debts and may only deduct business bad

Enter deductible officers’ compensation

the election for business start-up costs,

debts when they become wholly or

on line 1i. Attach a schedule showing the

see section 195. For more details on the

partially worthless.

name, social security number, and

election for organizational costs, see

amount of compensation paid to all

Line 2b. Taxes and Licenses

section 248.

officers. Do not include compensation

Enter taxes paid or accrued during the tax

Attach any statement required by

deductible elsewhere on the return, such

year, but do not include the following:

Regulations section 1.195-1(b) or

as amounts included in cost of goods

•

1.248-1(c). Report the deductible amount

sold, elective contributions to a section

Taxes not imposed on the corporation.

•

of these costs and any amortization on

401(k) cash or deferred arrangement, or

Taxes, including state or local sales

line 2g of Schedule E. For amortization

amounts contributed under a salary

taxes, that are paid or incurred in

-10-

Instructions for Form 1120-IC-DISC

Instructions For Form 1120-Ic-Disc - 2006 Page 10

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