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Schedule B

expenditures for direct labor and all

The use test applies at the time of the

indirect costs that would otherwise be

sale or lease. If the property is used

Gross Income

included in inventory costs.

predominantly outside the United States

and the sale or lease is not for ultimate

If an income item falls into two or more

The rolling average method of valuing

use in the United States, it is a qualified

categories, report each part on the

inventories generally does not clearly

export sale or lease. Otherwise, if a

applicable line. For example, if interest

reflect income for federal income tax

reasonable person would believe that the

income consists of qualified interest from

purposes. However, if an IC-DISC uses

property will be used in the United States,

a foreign international sales corporation

the average cost method for financial

the sale or lease is not a qualified export

and nonqualifying interest from a

accounting purposes, there are two safe

sale or lease. For example, if property is

domestic obligation, enter the qualified

harbors under which this method will be

sold to a foreign wholesaler and it is

interest on an attached schedule for line

deemed to clearly reflect income for

known in trade circles that the wholesaler,

2g and the nonqualifying interest on an

federal income tax purposes. See Rev.

to a substantial extent, supplies the U.S.

attached schedule for line 3f.

Proc. 2008-43, 2008-30 I.R.B. 186, as

retail market, the sale would not be a

For gain from selling qualified export

modified by Rev. Proc. 2008-52, 2008-36

qualified export sale, and the receipts

I.R.B. 587, and as modified by Rev. Proc.

assets, attach a separate schedule in

would not be qualified export receipts.

2011-14, 2011-4 I.R.B. 330, or a

addition to the forms required for lines 2h

Regardless of where title or risk of loss

successor.

and 2i.

shifts from the seller or lessor, the

Nonaccrual experience method for

property must be delivered under one of

IC-DISCs that use erroneous valuation

service providers. Accrual method

the following conditions to meet the

methods must change to a method

corporations are not required to accrue

destination test:

permitted for Federal income tax

certain amounts to be received from the

purposes. Use Form 3115 to make this

1. Within the United States to a carrier

performance of certain services that, on

change.

or freight forwarder for ultimate delivery

the basis of their experience, will not be

outside the United States to a buyer or

collected, if the corporation’s average

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

lessee.

annual gross receipts for the 3 prior tax

for valuing inventories. Under lower of

2. Within the United States to a buyer

years does not exceed $5 million.

cost or market, the term “market” (for

or lessee who, within 1 year of the sale or

This provision does not apply to any

normal goods) means the current bid

lease, delivers it outside the United States

amount if interest is required to be paid

price prevailing on the inventory valuation

or delivers it to another person for

on the amount or if there is any penalty

date for the particular merchandise in the

ultimate delivery outside the United

for failure to timely pay the amount. For

volume usually purchased by the

States.

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

taxpayer. If section 263A applies to the

3. Within or outside the United States

and Regulations section 1.448-2. Also,

taxpayer, the basic elements of cost must

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

see Rev. Proc. 2011-46, 2011-42, I.R.B.

reflect the current bid price of all direct

same controlled group (as defined in

518 for information on a book safe harbor

costs and all indirect costs properly

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

method of accounting for corporations

allocable to goods on hand at the

4. Outside the United States by

that use the nonaccrual experience

inventory date.

means of the seller’s delivery vehicle

method of accounting, and procedures to

(ship, plane, etc.).

Inventory may be valued below cost

obtain automatic consent to change to

5. Outside the United States to a

when the merchandise is unsalable at

this method or make certain changes

buyer or lessee at a storage or assembly

normal prices or unusable in the normal

within this method.

site if the property was previously shipped

way because the goods are subnormal

Corporations that qualify to use the

from the United States by the seller or

due to damage, imperfections, shopwear,

nonaccrual experience method should

lessor.

etc., within the meaning of Regulations

attach a schedule showing total gross

6. Outside the United States to a

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

receipts, the amount not accrued as a

purchaser or lessee if the property was

valued at the current bona fide selling

result of the application of section

previously shipped by the seller or lessor

price, minus direct cost of disposition (but

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

from the United States and if the property

not less than scrap value) if such a price

Enter the amount on the applicable line of

is located outside the United States

can be established.

Schedule B.

pursuant to a prior lease by the seller or

lessor, and either (a) the prior lease

If this is the first year the Last-in,

Commissions: Special Rule

terminated at the expiration of its term (or

First-out (LIFO) inventory method was

Note. “United States,” as used in the

by the action of the prior lessee acting

either adopted or extended to inventory

following instructions, includes Puerto

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

goods not previously valued under the

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

of the subsequent lease began after the

LIFO method provided in section 472,

50 states and the District of Columbia.

time at which the term of the prior lease

attach Form 970, Application To Use

would have expired, or (c) the lessee

If the IC-DISC received commissions

LIFO Inventory Method, or a statement

under the subsequent lease is not a

on selling or renting property or furnishing

with the information required by Form

related person (a member of the same

services, list in column (b) the gross

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

controlled group as defined in section

receipts from the sales, rentals, or

On line 9d, enter the amount or the

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

services on which the commissions

percent of total closing inventories

result in a disallowance of losses under

arose, and in column (c), list the

covered under section 472. Estimates are

section 267 or section 707(b))

commissions earned. In column (d) report

acceptable.

immediately before or after the lease with

receipts from noncommissioned sales or

respect to the lessor, and the prior lease

If the IC-DISC changed or extended its

rentals of property or furnishing of

was terminated by the action of the lessor

inventory method to LIFO and had to

services, as well as all other receipts.

(acting alone or together with the lessee).

write up the opening inventory to cost in

For purposes of completing line 1a and

the year of election, report the effect of

line 1b, related purchasers are members

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

Line-by-Line Instructions

of the same controlled group (as defined

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

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

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

over a 3-year period that begins with the

other purchasers are unrelated.

export receipts from export property sold

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

A qualified export sale or lease must

to foreign, unrelated buyers for delivery

For more information on inventory

meet a use test and a destination test in

outside the United States. Do not include

valuation methods, see Pub. 538.

order to qualify.

amounts entered on line 1b.

-6-

Instructions for Form 1120-IC-DISC (Rev. 12-2011)

Instructions For Form 1120-Ic Disc - Interest Charge Domestic International Sales Corporation Return - 2011 Page 6

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