Instructions For Form 1120-Fsc - 2006 (Page 5 of 13) in pdf

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2. Any transaction offered under

A FSC (other than a qualified personal

property for as long as they are needed to

conditions of confidentiality for which the

service corporation) must use the accrual

figure the basis of the original or

FSC paid an advisor a fee of at least

method of accounting if its average annual

replacement property.

$250,000.

gross receipts exceed $5 million.

The FSC should keep copies of all filed

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3. Certain transactions for which the

Unless it is a qualifying taxpayer or a

returns. They help in preparing future and

FSC has contractual protection against

qualifying small business taxpayer, a FSC

amended returns.

disallowance of the tax benefits.

must use the accrual method for sales and

4. Certain transactions resulting in a

purchases of inventory items. See Schedule

Payment of Tax Due

loss of at least $10 million in any single year

A, Cost of Goods Sold Related to Foreign

or $20 million in any combination of years.

Trading Gross Receipts, on page 7.

The FSC must pay the tax due in full no

5. Certain transactions resulting in a tax

later than the 15th day of the 3rd month

Change in accounting method. To

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

change its method of accounting used to

after the end of the tax year. The method for

held the asset generating the credit for 45

report taxable income (for income as a

payment of the tax due depends upon

days or less.

whether the FSC has an office or place of

whole or for the treatment of any material

business in the United States.

item), the FSC must file Form 3115,

Penalties. The FSC may have to pay a

Application for Change in Accounting

1. FSCs that do not maintain an office or

penalty if it is required to disclose a

Method. For more information, see Form

place of business in the United States must

reportable transaction under section 6011

3115 and Pub. 538, Accounting Periods and

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

and fails to properly complete and file Form

Methods.

8886. The penalty is $50,000 ($200,000 if

do not use either of the depository methods

the reportable transaction is a listed

of tax payment described below). The tax

Section 481(a) adjustment. The FSC

may be paid by check or money order,

transaction) for each failure to file Form

may have to make an adjustment under

payable to the “United States Treasury.” To

8886 with its corporate return or for failure to

section 481(a) to prevent amounts of

help ensure proper crediting, write the

provide a copy of Form 8886 to the Office of

income or expense from being duplicated or

Tax Shelter Analysis (OTSA). Other

FSC’s employer identification number (EIN),

omitted. The section 481(a) adjustment

penalties, such as an accuracy-related

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

period is generally 1 year for a net negative

which the payment applies on the check or

penalty under section 6662A, may also

adjustment and 4 years for a net positive

money order. Enclose the payment when

apply. See the Instructions for Form 8886

adjustment. However, a FSC may elect to

Form 1120-FSC is filed.

for details.

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

less than $25,000. The FSC must complete

Assembling the Return

the tax due using one of the depository

the appropriate lines of Form 3115 to make

To ensure that the FSC’s tax return is

methods of tax payment described below.

the election.

correctly processed, attach all schedules

and other forms after page 6, Form

Accounting Period

Depository Methods of Tax

1120-FSC, and in the following order:

A FSC must figure its taxable income on the

Payment

1. Schedule O (Form 1120).

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

2. Form 4626.

accounting period a FSC uses to keep its

Electronic Deposit Requirement

3. Form 4136.

records and report its income and expenses.

4. Form 851.

The FSC must make electronic deposits of

Generally, FSCs may use a calendar year or

5. Additional schedules in alphabetical

all depository taxes (such as employment

a fiscal year. Personal service corporations,

order.

tax, excise tax, and corporate income tax)

however, must generally use a calendar

6. Additional forms in numerical order.

using the Electronic Federal Tax Payment

year.

System (EFTPS) in 2007 if:

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Note. The tax year of a FSC must be the

Complete every applicable entry space

The total deposits of such taxes in 2005

same as the tax year of the principal

on Form 1120-FSC. Do not enter “See

were more than $200,000 or

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shareholder which, at the beginning of the

attached” instead of completing the entry

The FSC was required to use EFTPS

FSC tax year, has the highest percentage of

spaces. If more space is needed on the

in 2006.

voting power. If two or more shareholders

forms or schedules, attach separate sheets

If the FSC is required to use EFTPS and

have the highest percentage of voting

using the same size and format as the

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

power, the FSC must have a tax year that

printed forms. If there are supporting

penalty. If the FSC is not required to use

conforms to the tax year of any such

statements and attachments, arrange them

EFTPS, it may participate voluntarily. To

shareholder. See section 441(h).

in the same order as the schedules or forms

enroll in or get more information about

they support and attach them last. Show the

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

Rounding Off To

totals on the printed forms. Enter the FSC’s

online, visit

name and EIN on each supporting

Whole Dollars

statement or attachment.

Depositing on time. For EFTPS deposits

The FSC may round off cents to whole

to be made timely, the FSC must initiate the

dollars on its return and schedules. If the

Accounting Methods

transaction at least 1 business day before

FSC does round to whole dollars, it must

the date the deposit is due.

Figure taxable income using the method of

round all amounts. To round, drop amounts

accounting regularly used in keeping the

Deposits With Form 8109

under 50 cents and increase amounts from

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

50 to 99 cents to the next dollar (for

If the FSC does not use EFTPS, deposit

method used must clearly show taxable

example, $1.39 becomes $1 and $2.50

FSC income tax payments (and estimated

income. Permissible methods include cash,

becomes $3).

tax payments) with Form 8109, Federal Tax

accrual, or any other method authorized by

Deposit Coupon. If you do not have a

If two or more amounts must be added to

the Internal Revenue Code.

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

figure the amount to enter on a line, include

A member of a controlled group may not

make deposits. You can get this form by

cents when adding the amounts and round

use an accounting method that would distort

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

off only the total.

any group member’s income, including its

taxpayer assistance center. Have your EIN

Recordkeeping

own. For example, a FSC acts as a

ready when you call or visit.

commission agent for property sales by a

Keep the FSC’s records for as long as they

Do not send deposits directly to an IRS

related corporation that uses the accrual

may be needed for the administration of any

office; otherwise, the FSC may have to pay

method and pays the FSC its commission

provision of the Internal Revenue Code.

a penalty. Mail or deliver the completed

more than 2 months after the sale. In this

Usually, records that support an item of

Form 8109 with the payment to an

case, the FSC should not use the cash

income, deduction, or credit on the return

authorized depositary (a commercial bank or

method because that method would

must be kept for 3 years from the date the

other financial institution authorized to

materially distort its income.

return is due or filed, whichever is later.

accept Federal tax deposits). Make checks

Generally, the following rules apply:

Keep records that verify the FSC’s basis in

or money orders payable to the depositary.

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Instructions For Form 1120-Fsc - 2006 Page 5

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