Instructions For Form 1120-Fsc - 2007 (Page 8 of 13) in pdf

FSCs that use erroneous valuation

waive the entire carryback period for the

attach a schedule showing total gross

methods must change to a method

NOL and instead carry the NOL forward to

receipts, the amount not accrued as a result

permitted for Federal income tax purposes.

future tax years. To do so, check the box on

of the application of section 448(d)(5), and

To make this change, use Form 3115.

line 6 and file the tax return by its due date,

the net amount accrued. Enter the net

including extensions (do not attach the

amount on the applicable line of

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

statement described in Temporary

Schedule B.

valuing inventories. Under lower of cost or

Regulations section 301.9100-12T). Once

market, the term “market” (for normal goods)

Lines 1 through 5. Enter the foreign

made, the election is irrevocable. See Pub.

means the current bid price prevailing on the

trading gross receipts requested on lines 1

542 and Form 1139, Corporation Application

inventory valuation date for the particular

through 5. See section 924 and Foreign

for Tentative Refund, for more details.

merchandise in the volume usually

Trading Gross Receipts on page 3 of these

purchased by the taxpayer. If section 263A

Line 7. Enter the amount of the NOL

instructions for receipts that are excluded

applies to the taxpayer, the basic elements

carryover to the tax year from prior years,

and other details. Report commission

of cost must reflect the current bid price of

even if some of the loss is used to offset

income on line 1 or line 2 based on the sale,

all direct costs and all indirect costs properly

income on this return. The amount to enter

lease, or rental of property on which that

allocable to goods on hand at the inventory

is the total of all NOLs generated in prior

commission arose.

date.

years but not used to offset income (either

Line 5. If the 50% gross receipts test of

as a carryback or carryover) to a tax year

Inventory may be valued below cost

section 924(a)(5) is not met, report the

prior to 2007. Do not reduce the amount by

when the merchandise is unsalable at

FSC’s gross receipts that would have

any NOL deduction reported on line 19a,

normal prices or unusable in the normal way

otherwise qualified under that section on line

Part II of Schedule B.

because the goods are subnormal due to

16, Schedule F, instead of line 5,

damage, imperfections, shop wear, etc.,

Lines 8c and 9b(2). See Definition of a

Schedule B.

within the meaning of Regulations section

Foreign Sales Corporation (FSC) on page 2

1.471-2(c). The goods may be valued at the

Lines 6b through 6h. See section

for definitions of qualifying foreign country

current bona fide selling price, minus direct

924(b)(2)(B) for the rules regarding the

and U.S. possession.

cost of disposition (but not less than scrap

limitation on the amount of foreign trading

Line 9. All FSCs (except small FSCs) must

value) if such a price can be established.

gross receipts that a small FSC may take

answer these questions. For more

into account in determining its exempt

If this is the first year the Last-in,

information, see Foreign Management Rules

foreign trade income.

First-out (LIFO) inventory method was either

on page 3.

adopted or extended to inventory goods not

Line 6d. Temporary Regulations section

Line 10. All FSCs (except small FSCs)

previously valued under the LIFO method

1.921-1T(b)(5) indicates that, in the case of

must answer these questions. On line 10b,

provided in section 472, attach Form 970,

a small FSC having a short tax year, the

indicate how the FSC met the foreign direct

Application To Use LIFO Inventory Method,

dollar limitation reported on line 6b or 6c is

costs requirement of section 924(d) for all

or a statement with the information required

to be prorated on a daily basis. A small FSC

transactions that generated foreign trading

by Form 970. Also check the LIFO box on

having a short tax year must divide the

gross receipts reported on lines 1 through 5

line 9c. On line 9d, enter the amount or the

number of days in its short tax year by the

of Schedule B. Also, complete line 10a

percent of total closing inventories covered

number of days that would have made up a

and/or line 10d to make an election to use

under section 472. Estimates are

full tax year and enter the resulting fraction

either of the annual grouping election(s)

acceptable.

on line 6d as a decimal less than 1.00000.

indicated. See Foreign Economic Process

If the FSC changed or extended its

Rules on page 3 for details.

Example. For its 2007 calendar year

inventory method to LIFO and had to write

tax year, a small FSC has a short tax year of

up the opening inventory to cost in the year

Schedule B

73 days. The FSC enters 0.20 (73/365) on

of election, report the effect of the write-up

line 6d.

as other income (as appropriate on

Taxable Income or (Loss)

Schedule F, line 16), proportionately over a

Line 6f. If commission income is reported

Use Schedule B to compute taxable income

3-year period that begins with the year of

in the total for line 6a of Schedule B, total

from all sources.

the LIFO election (section 472(d)).

receipts for purposes of line 6f are figured

as follows:

For more information on inventory

Part I

valuation methods, see Pub. 538.

Use Part I to compute net income

1. Enter total of columns (a) and (b),

attributable to nonexempt foreign trade

line 6a, Schedule B . . . . . . . . . . . 1.

Additional Information

income. Income and expenses on lines 1

2. Enter total commission income

through 15 are reported in column (a) if the

Line 2. Show any tax-exempt interest

reported on line 1 and line 2,

administrative pricing rules were used in the

received or accrued. Include any

Schedule B . . . . . . . . . . . . . . . . 2.

transaction that produced the income.

exempt-interest dividends received as a

3. Subtract line 2 from line 1 . . . . . . . 3.

shareholder in a mutual fund or other

Report in column (b) all foreign trade

regulated investment company. Also include

income from all transactions in which the

4. With respect to the commission

this amount on Schedule M-1, line 7a.

administrative pricing rules were not used.

income reported on line 2 above,

Attach a schedule that shows the

enter total gross receipts on the

Line 5. If the FSC owned at least a 10%

sale, lease, or rental of property on

computation of the taxable and nontaxable

interest, directly or indirectly, in any foreign

which the commission income

income included on line 15, column (b).

partnership, attach a statement listing the

arose (section 927(b)(2)) . . . . . . . 4.

Include only the taxable amount on line 16.

following information for each foreign

partnership. For this purpose, a foreign

5. Add lines 3 and 4. Enter here and

Nonaccrual experience method. Accrual

partnership includes an entity treated as a

on line 6f, Schedule B . . . . . . . . . 5.

method FSCs are not required to accrue

foreign partnership under Regulations

certain amounts to be received from the

section 301.7701-2 or 301.7701-3.

Line 6h. When making the line 6h

performance of certain services that, on the

allocation, allocate only the commission

1. Name and EIN (if any) of the foreign

basis of their experience, will not be

income from the gross receipts on line 4

collected, if the FSC’s average annual gross

partnership;

above. If the small FSC’s foreign trading

receipts for the 3 prior tax years does not

2. Identify which, if any, of the following

gross receipts for the tax year (line 6f,

forms the foreign partnership filed for its tax

exceed $5 million.

Schedule B) exceed its allowable limitation

year ending with or within the FSC’s tax

This provision does not apply to any

(line 6e, Schedule B), the small FSC may

year: Form 1042, 1065 or 1065-B, or 8804;

amount if interest is required to be paid on

select the gross receipts to which the

3. Name of the tax matters partner (if

the amount or if there is any penalty for

limitation is allocated. In such a case,

any) and

failure to timely pay the amount. For more

allocate the amount on line 6g between

4. Beginning and ending dates of the

information, see Regulations section

columns (a) and (b) on line 6h based on

foreign partnership’s tax year.

1.448-2.

whether the administrative pricing rules

Line 6. If the FSC has a net operating loss

Corporations that qualify to use the

were used for the gross receipts selected.

(NOL) for its 2007 tax year, it may elect to

nonaccrual experience method should

See Regulations section 1.921-2(b), Q&A-4.

-8-

Instructions For Form 1120-Fsc - 2007 Page 8

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