Instructions For Form 1120-Fsc - 2006 (Page 8 of 13) in pdf

Lines 9a through 9f. Inventory valuation

regulated investment company. Also include

Report in column (b) all foreign trade

methods. Inventories may be valued at:

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

income from all transactions in which the

•

Cost;

administrative pricing rules were not used.

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

•

Cost or market value (whichever is lower)

Attach a schedule that shows the

interest, directly or indirectly, in any foreign

computation of the taxable and nontaxable

partnership, attach a statement listing the

•

Any other method approved by the IRS

income included on line 15, column (b).

following information for each foreign

that conforms to the requirements of the

Include only the taxable amount on line 16.

partnership. For this purpose, a foreign

applicable regulations cited below.

Nonaccrual experience method. Accrual

partnership includes an entity treated as a

However, if the FSC is using the cash

method FSCs are not required to accrue

foreign partnership under Regulations

method of accounting, it is required to use

certain amounts to be received from the

section 301.7701-2 or 301.7701-3.

cost.

performance of certain services that, on the

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

basis of their experience, will not be

FSCs that account for inventoriable items

partnership;

collected, if the FSC’s average annual gross

in the same manner as materials and

2. Identify which, if any, of the following

receipts for the 3 prior tax years does not

supplies that are not incidental may

forms the foreign partnership filed for its tax

exceed $5 million.

currently deduct expenditures for direct

year ending with or within the FSC’s tax

labor and all indirect costs that would

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

This provision does not apply to any

otherwise be included in inventory costs.

3. Name of the tax matters partner (if

amount if interest is required to be paid on

any) and

the amount or if there is any penalty for

The average cost (rolling average)

4. Beginning and ending dates of the

failure to timely pay the amount. For more

method of valuing inventories generally

foreign partnership’s tax year.

does not conform to the requirements of the

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

regulations. See Rev. Rul. 71-234, 1971-1

Regulations section 1.448-2.

Line 6. If the FSC has a net operating loss

C.B. 148.

Corporations that qualify to use the

(NOL) for its 2006 tax year, it may elect to

FSCs that use erroneous valuation

nonaccrual experience method should

waive the entire carryback period for the

methods must change to a method

attach a schedule showing total gross

NOL and instead carry the NOL forward to

permitted for Federal income tax purposes.

receipts, the amount not accrued as a result

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

To make this change, use Form 3115.

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

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

the net amount accrued. Enter the net

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

including extensions (do not attach the

amount on the applicable line of

valuing inventories. Under lower of cost or

statement described in Temporary

Schedule B.

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

Regulations section 301.9100-12T). Once

means the current bid price prevailing on the

made, the election is irrevocable. See Pub.

Lines 1 through 5. Enter the foreign

inventory valuation date for the particular

542 and Form 1139, Corporation Application

trading gross receipts requested on lines 1

merchandise in the volume usually

for Tentative Refund, for more details.

through 5. See section 924 and Foreign

purchased by the taxpayer. If section 263A

Trading Gross Receipts on page 3 of these

Line 7. Enter the amount of the NOL

applies to the taxpayer, the basic elements

instructions for receipts that are excluded

carryover to the tax year from prior years,

of cost must reflect the current bid price of

and other details. Report commission

even if some of the loss is used to offset

all direct costs and all indirect costs properly

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

income on this return. The amount to enter

allocable to goods on hand at the inventory

lease, or rental of property on which that

is the total of all NOLs generated in prior

date.

commission arose.

years but not used to offset income (either

Inventory may be valued below cost

as a carryback or carryover) to a tax year

Line 5. If the 50% gross receipts test of

when the merchandise is unsalable at

prior to 2006. Do not reduce the amount by

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

normal prices or unusable in the normal way

any NOL deduction reported on line 19a,

FSC’s gross receipts that would have

because the goods are subnormal due to

otherwise qualified under that section on line

Part II of Schedule B.

damage, imperfections, shop wear, etc.,

16, Schedule F, instead of line 5,

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

within the meaning of Regulations section

Schedule B.

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

value) if such a price can be established.

Line 9. All FSCs (except small FSCs) must

gross receipts that a small FSC may take

If this is the first year the Last-in,

answer these questions. For more

into account in determining its exempt

First-out (LIFO) inventory method was either

information, see Foreign Management Rules

foreign trade income.

adopted or extended to inventory goods not

on page 3.

Line 6d. Temporary Regulations section

previously valued under the LIFO method

Line 10. All FSCs (except small FSCs)

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

provided in section 472, attach Form 970,

must answer these questions. On line 10b,

a small FSC having a short tax year, the

Application To Use LIFO Inventory Method,

indicate how the FSC met the foreign direct

dollar limitation reported on line 6b or 6c is

or a statement with the information required

costs requirement of section 924(d) for all

to be prorated on a daily basis. A small FSC

by Form 970. Also check the LIFO box on

transactions that generated foreign trading

having a short tax year must divide the

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

gross receipts reported on lines 1 through 5

number of days in its short tax year by the

percent of total closing inventories covered

of Schedule B. Also, complete line 10a

number of days that would have made up a

under section 472. Estimates are

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

full tax year and enter the resulting fraction

acceptable.

either of the annual grouping election(s)

on line 6d as a decimal less than 1.00000.

If the FSC changed or extended its

indicated. See Foreign Economic Process

inventory method to LIFO and had to write

Example. For its 2006 calendar year tax

Rules on page 3 for details.

up the opening inventory to cost in the year

year, a small FSC has a short tax year of 73

of election, report the effect of the write-up

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

Schedule B

line 6d.

as other income (as appropriate on

Schedule F, line 16), proportionately over a

Taxable Income or (Loss)

Line 6f. If commission income is reported in

3-year period that begins with the year of

the total for line 6a of Schedule B, total

Use Schedule B to compute taxable income

the LIFO election (section 472(d)).

receipts for purposes of line 6f are figured

from all sources.

For more information on inventory

as follows:

valuation methods, see Pub. 538.

Part I

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

Use Part I to compute net income

Additional Information

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

attributable to nonexempt foreign trade

2. Enter total commission income

Line 2. Show any tax-exempt interest

income. Income and expenses on lines 1

reported on line 1 and line 2,

received or accrued. Include any

through 15 are reported in column (a) if the

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

exempt-interest dividends received as a

administrative pricing rules were used in the

shareholder in a mutual fund or other

transaction that produced the income.

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

-8-

Instructions For Form 1120-Fsc - 2006 Page 8

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