Instructions For Form 1120-Ic-Disc - 2007 (Page 7 of 16) in pdf

Lines 9a through 9f. Inventory

over a 3-year period that begins with the

use in the United States, it is a qualified

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

export sale or lease. Otherwise, if a

Valuation Methods

reasonable person would believe that the

For more information on inventory

Inventories may be valued at:

•

property will be used in the United States,

valuation methods, see Pub. 538.

Cost;

•

the sale or lease is not a qualified export

Cost or market value (whichever is

Schedule B

sale or lease. For example, if property is

lower); or

•

sold to a foreign wholesaler and it is

Any other method approved by the IRS

known in trade circles that the wholesaler,

Gross Income

that conforms to the requirements of the

to a substantial extent, supplies the U.S.

applicable regulations cited below.

If an income item falls into two or more

retail market, the sale would not be a

categories, report each part on the

However, if the IC-DISC is using the

qualified export sale, and the receipts

applicable line. For example, if interest

cash method of accounting, it is required

would not be qualified export receipts.

income consists of qualified interest from

to use cost.

a foreign international sales corporation

Regardless of where title or risk of loss

IC-DISCs that account for

and nonqualifying interest from a

shifts from the seller or lessor, the

inventoriable items in the same manner

domestic obligation, enter the qualified

property must be delivered under one of

as materials and supplies that are not

interest on an attached schedule for line

the following conditions to meet the

incidental may currently deduct

2g and the nonqualifying interest on an

destination test:

expenditures for direct labor and all

attached schedule for line 3f.

1. Within the United States to a carrier

indirect costs that would otherwise be

For gain from selling qualified export

or freight forwarder for ultimate delivery

included in inventory costs.

assets, attach a separate schedule in

outside the United States to a buyer or

The average cost (rolling average)

addition to the forms required for lines 2h

lessee.

method of valuing inventories generally

and 2i.

2. Within the United States to a buyer

does not conform to the requirements of

or lessee who, within 1 year of the sale or

Nonaccrual experience method.

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

lease, delivers it outside the United States

Accrual method corporations are not

1971-1 C.B. 148.

or delivers it to another person for

required to accrue certain amounts to be

IC-DISCs that use erroneous valuation

ultimate delivery outside the United

received from the performance of certain

methods must change to a method

States.

services that, on the basis of their

permitted for Federal income tax

3. Within or outside the United States

experience, will not be collected, if the

purposes. Use Form 3115 to make this

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

corporation’s average annual gross

change.

same controlled group (as defined in

receipts for the 3 prior tax years does not

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

exceed $5 million.

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

4. Outside the United States by

for valuing inventories. Under lower of

This provision does not apply to any

means of the seller’s delivery vehicle

cost or market, the term “market” (for

amount if interest is required to be paid

(ship, plane, etc.).

normal goods) means the current bid

on the amount or if there is any penalty

5. Outside the United States to a

price prevailing on the inventory valuation

for failure to timely pay the amount. For

buyer or lessee at a storage or assembly

date for the particular merchandise in the

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

site if the property was previously shipped

volume usually purchased by the

and Regulations section 1.448-2.

from the United States by the seller or

taxpayer. If section 263A applies to the

Corporations that qualify to use the

lessor.

taxpayer, the basic elements of cost must

nonaccrual experience method should

6. Outside the United States to a

reflect the current bid price of all direct

attach a schedule showing total gross

purchaser or lessee if the property was

costs and all indirect costs properly

receipts, the amount not accrued as a

previously shipped by the seller or lessor

allocable to goods on hand at the

result of the application of section

from the United States and if the property

inventory date.

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

is located outside the United States

Enter the amount on the applicable line of

Inventory may be valued below cost

pursuant to a prior lease by the seller or

Schedule B.

when the merchandise is unsalable at

lessor, and either (a) the prior lease

normal prices or unusable in the normal

Commissions: Special Rule

terminated at the expiration of its term (or

way because the goods are subnormal

by the action of the prior lessee acting

Note. “United States,” as used in the

due to damage, imperfections, shopwear,

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

following instructions, includes Puerto

etc., within the meaning of Regulations

of the subsequent lease began after the

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

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

time at which the term of the prior lease

50 states and the District of Columbia.

valued at the current bona fide selling

would have expired, or (c) the lessee

price, minus direct cost of disposition (but

If the IC-DISC received commissions

under the subsequent lease is not a

on selling or renting property or furnishing

not less than scrap value) if such a price

related person (a member of the same

services, list in column (b) the gross

can be established.

controlled group as defined in section

receipts from the sales, rentals, or

If this is the first year the Last-in,

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

services on which the commissions

First-out (LIFO) inventory method was

result in a disallowance of losses under

arose, and in column (c), list the

either adopted or extended to inventory

section 267 or section 707(b))

commissions earned. In column (d) report

goods not previously valued under the

immediately before or after the lease with

receipts from noncommissioned sales or

LIFO method provided in section 472,

respect to the lessor, and the prior lease

rentals of property or furnishing of

attach Form 970, Application To Use

was terminated by the action of the lessor

services, as well as all other receipts.

LIFO Inventory Method, or a statement

(acting alone or together with the lessee).

For purposes of completing line 1a and

with the information required by Form

line 1b, related purchasers are members

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

Line-by-Line Instructions

of the same controlled group (as defined

On line 9d, enter the amount or the

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

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

percent of total closing inventories

export receipts from export property sold

other purchasers are unrelated.

covered under section 472. Estimates are

to foreign, unrelated buyers for delivery

acceptable.

A qualified export sale or lease must

outside the United States. Do not include

meet a use test and a destination test in

If the IC-DISC changed or extended its

amounts entered on line 1b.

order to qualify.

inventory method to LIFO and had to

write up the opening inventory to cost in

The use test applies at the time of the

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

the year of election, report the effect of

sale or lease. If the property is used

export receipts from export property sold

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

predominantly outside the United States

for delivery outside the United States to a

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

and the sale or lease is not for ultimate

related foreign entity for resale to a

-7-

Instructions for Form 1120-IC-DISC

Instructions For Form 1120-Ic-Disc - 2007 Page 7

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