Instructions For Form 1120-Ic-Disc - 2006 (Page 7 of 16) in pdf

Enter on line 4 the balance of section

If this is the first year the Last-in,

receipts from the sales, rentals, or

263A costs paid or incurred during the tax

First-out (LIFO) inventory method was

services on which the commissions

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

either adopted or extended to inventory

arose, and in column (c), list the

goods not previously valued under the

commissions earned. In column (d) report

Line 5. Other Costs

LIFO method provided in section 472,

receipts from noncommissioned sales or

Enter on line 5 any costs paid or incurred

attach Form 970, Application To Use

rentals of property or furnishing of

during the tax year not entered on lines 2

LIFO Inventory Method, or a statement

services, as well as all other receipts.

through 4.

with the information required by Form

For purposes of completing line 1a and

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

Line 7. Inventory at End of Year

line 1b, related purchasers are members

On line 9d, enter the amount or the

of the same controlled group (as defined

See Regulations sections 1.263A-1

percent of total closing inventories

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

through 1.263A-3 for details on figuring

covered under section 472. Estimates are

other purchasers are unrelated.

the amount of additional section 263A

acceptable.

costs to be included in ending inventory. If

A qualified export sale or lease must

If the IC-DISC changed or extended its

the IC-DISC accounts for inventoriable

meet a use test and a destination test in

inventory method to LIFO and had to

items in the same manner as materials

order to qualify.

write up the opening inventory to cost in

and supplies that are not incidental, enter

the year of election, report the effect of

The use test applies at the time of the

on line 7 the portion of its merchandise

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

sale or lease. If the property is used

purchased for resale that is included on

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

predominantly outside the United States

line 6 and was not sold during the year.

over a 3-year period that begins with the

and the sale or lease is not for ultimate

Lines 9a through 9f. Inventory

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

use in the United States, it is a qualified

Valuation Methods

export sale or lease. Otherwise, if a

For more information on inventory

Inventories may be valued at:

reasonable person would believe that the

valuation methods, see Pub. 538.

•

Cost;

property will be used in the United States,

•

Cost or market value (whichever is

Schedule B

the sale or lease is not a qualified export

lower); or

sale or lease. For example, if property is

•

Any other method approved by the IRS

sold to a foreign wholesaler and it is

Gross Income

that conforms to the requirements of the

known in trade circles that the wholesaler,

If an income item falls into two or more

applicable regulations cited below.

to a substantial extent, supplies the U.S.

categories, report each part on the

retail market, the sale would not be a

However, if the IC-DISC is using the

applicable line. For example, if interest

qualified export sale, and the receipts

cash method of accounting, it is required

income consists of qualified interest from

would not be qualified export receipts.

to use cost.

a foreign international sales corporation

and nonqualifying interest from a

Regardless of where title or risk of loss

IC-DISCs that account for

domestic obligation, enter the qualified

shifts from the seller or lessor, the

inventoriable items in the same manner

interest on an attached schedule for line

property must be delivered under one of

as materials and supplies that are not

2g and the nonqualifying interest on an

the following conditions to meet the

incidental may currently deduct

attached schedule for line 3f.

destination test:

expenditures for direct labor and all

indirect costs that would otherwise be

For gain from selling qualified export

1. Within the United States to a carrier

included in inventory costs.

assets, attach a separate schedule in

or freight forwarder for ultimate delivery

addition to the forms required for lines 2h

outside the United States to a buyer or

The average cost (rolling average)

and 2i.

lessee.

method of valuing inventories generally

2. Within the United States to a buyer

does not conform to the requirements of

Nonaccrual experience method.

or lessee who, within 1 year of the sale or

the regulations. See Rev. Rul. 71-234,

Accrual method corporations are not

lease, delivers it outside the United States

1971-1 C.B. 148.

required to accrue certain amounts to be

or delivers it to another person for

received from the performance of certain

IC-DISCs that use erroneous valuation

ultimate delivery outside the United

services that, on the basis of their

methods must change to a method

States.

experience, will not be collected, if the

permitted for Federal income tax

3. Within or outside the United States

corporation’s average annual gross

purposes. Use Form 3115 to make this

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

receipts for the 3 prior tax years does not

change.

same controlled group (as defined in

exceed $5 million.

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

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

This provision does not apply to any

for valuing inventories. Under lower of

4. Outside the United States by

amount if interest is required to be paid

cost or market, the term “market” (for

means of the seller’s delivery vehicle

on the amount or if there is any penalty

normal goods) means the current bid

(ship, plane, etc.).

for failure to timely pay the amount. For

price prevailing on the inventory valuation

5. Outside the United States to a

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

date for the particular merchandise in the

buyer or lessee at a storage or assembly

and Regulations section 1.448-2.

volume usually purchased by the

site if the property was previously shipped

taxpayer. If section 263A applies to the

Corporations that qualify to use the

from the United States by the seller or

taxpayer, the basic elements of cost must

nonaccrual experience method should

lessor.

reflect the current bid price of all direct

attach a schedule showing total gross

6. Outside the United States to a

costs and all indirect costs properly

receipts, the amount not accrued as a

purchaser or lessee if the property was

allocable to goods on hand at the

result of the application of section

previously shipped by the seller or lessor

inventory date.

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

from the United States and if the property

Enter the amount on the applicable line of

Inventory may be valued below cost

is located outside the United States

Schedule B.

when the merchandise is unsalable at

pursuant to a prior lease by the seller or

normal prices or unusable in the normal

lessor, and either (a) the prior lease

Commissions: Special Rule

way because the goods are subnormal

terminated at the expiration of its term (or

Note. “United States,” as used in the

due to damage, imperfections, shopwear,

by the action of the prior lessee acting

following instructions, includes Puerto

etc., within the meaning of Regulations

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

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

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

of the subsequent lease began after the

50 states and the District of Columbia.

valued at the current bona fide selling

time at which the term of the prior lease

price, minus direct cost of disposition (but

If the IC-DISC received commissions

would have expired, or (c) the lessee

not less than scrap value) if such a price

on selling or renting property or furnishing

under the subsequent lease is not a

can be established.

services, list in column (b) the gross

related person (a member of the same

-7-

Instructions for Form 1120-IC-DISC

Instructions For Form 1120-Ic-Disc - 2006 Page 7

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