Instructions For Form 1120-Fsc - 2007 (Page 5 of 13) in pdf

FSC, or a related party, paid an advisor a

case, the FSC should not use the cash

provision of the Internal Revenue Code.

fee of at least $250,000.

method because that method would

Usually, records that support an item of

3. Certain transactions for which the

materially distort its income.

income, deduction, or credit on the return

FSC, or a related party, has contractual

must be kept for 3 years from the date the

Generally, the following rules apply:

•

protection against disallowance of the tax

return is due or filed, whichever is later.

A FSC (other than a qualified personal

benefits.

Keep records that verify the FSC’s basis in

service corporation) must use the accrual

4. Certain transactions resulting in a

property for as long as they are needed to

method of accounting if its average annual

loss of at least $10 million in any single year

figure the basis of the original or

gross receipts exceed $5 million. However,

or $20 million in any combination of years.

replacement property.

see Nonaccrual experience method on page

5. Certain transactions resulting in a tax

The FSC should keep copies of all filed

•

credit of more than $250,000, if the FSC

Unless it is a qualifying taxpayer or a

returns. They help in preparing future and

held the asset generating the credit for 45

qualifying small business taxpayer, a FSC

amended returns.

days or less.

must use the accrual method for sales and

6. Any transaction identified by the IRS

Payment of Tax Due

purchases of inventory items. See Schedule

in published guidance as a “transaction of

A, Cost of Goods Sold Related to Foreign

The FSC must pay the tax due in full no

interest” (a transaction that the IRS believes

Trading Gross Receipts, on page 7.

later than the 15th day of the 3rd month

has a potential for tax avoidance or evasion,

Change in accounting method. To

after the end of the tax year. The method for

but has not yet been identified as a listed

change its method of accounting used to

payment of the tax due depends upon

transaction).

report taxable income (for income as a

whether the FSC has an office or place of

Penalties. The FSC may have to pay a

whole or for the treatment of any material

business in the United States.

penalty if it is required to disclose a

item), the FSC must file Form 3115,

1. FSCs that do not maintain an office or

reportable transaction under section 6011

Application for Change in Accounting

place of business in the United States must

and fails to properly complete and file Form

Method. For more information, see Form

pay the tax due directly to the IRS (that is,

8886. Penalties also apply under section

3115 and Pub. 538, Accounting Periods and

do not use either of the depository methods

6707A if the FSC fails to file Form 8886 with

Methods.

of tax payment described below). The tax

its return, fails to provide a copy of Form

Section 481(a) adjustment. The FSC

may be paid by check or money order,

8886 to the Office of Tax Shelter Analysis

may have to make an adjustment under

payable to the “United States Treasury.” To

(OTSA), or files a form that fails to include

section 481(a) to prevent amounts of

help ensure proper crediting, write the

all the information required (or includes

income or expense from being duplicated or

FSC’s employer identification number (EIN),

incorrect information). Other penalties, such

omitted. The section 481(a) adjustment

“Form 1120-FSC,” and the tax period to

as an accuracy-related penalty under

period is generally 1 year for a net negative

which the payment applies on the check or

section 6662A, may also apply. See the

adjustment and 4 years for a net positive

money order. Enclose the payment when

Instructions for Form 8886 for details on

adjustment. However, a FSC may elect to

Form 1120-FSC is filed.

these and other penalties.

use a 1-year adjustment period if the net

2. FSCs that maintain an office or place

section 481(a) adjustment for the change is

of business in the United States must pay

Assembling the Return

less than $25,000. The FSC must complete

the tax due using one of the depository

To ensure that the FSC’s tax return is

the appropriate lines of Form 3115 to make

methods of tax payment described below.

correctly processed, attach all schedules

the election.

and other forms after page 6, Form

Depository Methods of Tax

Accounting Period

1120-FSC, and in the following order:

Payment

1. Schedule O (Form 1120).

A FSC must figure its taxable income on the

2. Form 4626.

basis of a tax year. A tax year is the annual

Electronic Deposit Requirement

3. Form 4136.

accounting period a FSC uses to keep its

The FSC must make electronic deposits of

4. Form 851.

records and report its income and expenses.

all depository taxes (such as employment

5. Additional schedules in alphabetical

Generally, FSCs may use a calendar year or

tax, excise tax, and corporate income tax)

order.

a fiscal year. Personal service corporations,

using the Electronic Federal Tax Payment

6. Additional forms in numerical order.

however, must generally use a calendar

System (EFTPS) in 2008 if:

year.

•

Complete every applicable entry space

The total deposits of such taxes in 2006

Note. The tax year of a FSC must be the

on Form 1120-FSC. Do not enter “See

were more than $200,000 or

•

same as the tax year of the principal

attached” instead of completing the entry

The FSC was required to use EFTPS

shareholder which, at the beginning of the

spaces. If more space is needed on the

in 2007.

FSC tax year, has the highest percentage of

forms or schedules, attach separate sheets

If the FSC is required to use EFTPS and

voting power. If two or more shareholders

using the same size and format as the

fails to do so, it may be subject to a 10%

have the highest percentage of voting

printed forms. If there are supporting

penalty. If the FSC is not required to use

power, the FSC must have a tax year that

statements and attachments, arrange them

EFTPS, it may participate voluntarily. To

conforms to the tax year of any such

in the same order as the schedules or forms

enroll in or get more information about

shareholder. See section 441(h).

they support and attach them last. Show the

EFTPS, call 1-800-555-4477. To enroll

totals on the printed forms. Enter the FSC’s

online, visit

Rounding Off To

name and EIN on each supporting

Depositing on time. For EFTPS deposits

statement or attachment.

Whole Dollars

to be made timely, the FSC must initiate the

transaction at least 1 business day before

Accounting Methods

The FSC may round off cents to whole

the date the deposit is due.

dollars on its return and schedules. If the

Figure taxable income using the method of

FSC does round to whole dollars, it must

Deposits With Form 8109

accounting regularly used in keeping the

round all amounts. To round, drop amounts

FSC’s books and records. In all cases, the

If the FSC does not use EFTPS, deposit

under 50 cents and increase amounts from

method used must clearly show taxable

FSC income tax payments (and estimated

50 to 99 cents to the next dollar (for

income. Permissible methods include cash,

tax payments) with Form 8109, Federal Tax

example, $1.39 becomes $1 and $2.50

accrual, or any other method authorized by

Deposit Coupon. If you do not have a

becomes $3).

the Internal Revenue Code.

pre-printed Form 8109, use Form 8109-B to

If two or more amounts must be added to

make deposits. You can get this form by

A member of a controlled group may not

figure the amount to enter on a line, include

calling 1-800-829-4933 or visiting an IRS

use an accounting method that would distort

cents when adding the amounts and round

taxpayer assistance center. Have your EIN

any group member’s income, including its

off only the total.

ready when you call or visit.

own. For example, a FSC acts as a

commission agent for property sales by a

Do not send deposits directly to an IRS

Recordkeeping

related corporation that uses the accrual

office; otherwise, the FSC may have to pay

method and pays the FSC its commission

Keep the FSC’s records for as long as they

a penalty. Mail or deliver the completed

more than 2 months after the sale. In this

may be needed for the administration of any

Form 8109 with the payment to an

-5-

Instructions For Form 1120-Fsc - 2007 Page 5

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