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stock (section 1563 defines a controlled

ships in those cases where U.S. law or

A producer's loan. A producer's loan

group in this sense, and sections 1563(d)

regulations do not require that the export

must meet all the following terms.

and (e) define ownership), and

property be shipped on such aircraft or

1. Satisfy the requirements of sections

The IC-DISC's ownership of the foreign

ships.

993(d)(2) and (3).

corporation's stock or securities

Deficits in Earnings and Profits

2. Not raise the unpaid balance due

reasonably furthers transactions that lead

the IC-DISC on all of its producer's loans

A deficit in earnings and profits is

to qualified export receipts for the

above the level of accumulated IC-DISC

chargeable in the following order.

IC-DISC.

income it had at the start of the month in

1. First, to any earnings and profits

See Regulations section 1.993-5 for

which it made the loan.

other than accumulated IC-DISC income

more information about related foreign

3. Be evidenced by a note, or other

or previously taxed income.

export corporations.

written evidence of indebtedness, with a

2. Second, to any accumulated

Gross receipts. Gross receipts are the

stated maturity date no more than 5 years

IC-DISC income.

IC-DISC's total receipts from selling,

after the date of the loan.

3. Third, to previously taxed income.

leasing, or renting property that the

4. Be made to a person engaged in a

corporation holds for sale, lease, or rent in

Do not apply any deficit in earnings and

U.S. trade or business of making, growing,

the ordinary course of its trade or business

profits against accumulated IC-DISC

or extracting export property.

and gross income from all other sources.

income that, as a result of the

5. Be designated as a producer's loan

For commissions on selling, leasing, or

corporation's revoking its election to be

when made.

renting property, include gross receipts

treated as an IC-DISC (or other

from selling, leasing, or renting the

For more information, see Schedule Q

disqualification), is deemed distributed to

property on which the commissions arose.

(Form 1120-IC-DISC), Borrower's

the shareholders. See section 995(b)(2)

See Regulations section 1.993-6 for more

Certificate of Compliance With the Rules

(A).

information.

for Producer's Loans, and Regulations

Penalties

section 1.993-4.

Section 994, Intercompany

Pricing Rules

The IC-DISC may have to pay the

A related foreign export corporation.

following penalties unless it can show that

A related foreign export corporation

If a related person described in section

it had reasonable cause for not providing

includes the following.

482 sells export property to the IC-DISC,

information or not filing a return.

1. A foreign international sales

use the intercompany pricing rules to

$100 for each instance of not providing

corporation is a related foreign export

figure taxable income for the IC-DISC and

required information, up to $25,000 during

corporation if:

the seller. These rules generally do not

the calendar year.

The IC-DISC directly owns more than

permit the related person to price at a loss.

$1,000 for not filing a return.

50% of the total voting power of the

Under intercompany pricing, the

foreign corporation's stock;

IC-DISC's taxable income from the sale

See section 6686 for other details.

For the tax year that ends with or within

(regardless of the price actually charged)

If you receive a notice about penalty

the IC-DISC's tax year, at least 95% of the

may not exceed the greatest of:

and interest after you file Form

foreign corporation's gross receipts

1. 4% of qualified export receipts on

1120-IC-DISC, send us an explanation

consists of the qualified export receipts

the IC-DISC's sale of the property plus

and we will determine if you meet

described in items 1–4 of

Qualified export

10% of the IC-DISC's export promotion

reasonable-cause criteria. Do not attach

receipts, earlier, and interest on the

expenses attributable to the receipts;

an explanation when you file Form

qualified export assets listed in items 3

2. 50% of the IC-DISC's and the

1120-IC-DISC.

and 4 of

Qualified export

assets, earlier;

seller's combined taxable income from

and

Trust fund recovery penalty. This

qualified export receipts on the property,

The adjusted basis of the qualified

penalty may apply if certain excise,

derived from the IC-DISC's sale of the

export assets in items 1–4 of

Qualified

income, social security, and Medicare

property plus 10% of the IC-DISC's export

export

assets, earlier, that the foreign

taxes that must be collected or withheld

promotion expenses attributable to the

corporation held at the end of the tax year

are not collected or withheld, or these

receipts; or

is at least 95% of the adjusted basis of all

taxes are not paid. These taxes are

assets it held then.

3. Taxable income based on the sale

generally reported on:

price actually charged, provided that

Form 720, Quarterly Federal Excise

2. A real property holding

under section 482 the price actually

Tax Return;

company is a related foreign export

charged clearly reflects the taxable

Form 941, Employer's QUARTERLY

corporation if:

income of the IC-DISC and the related

Federal Tax Return; or

The IC-DISC directly owns more than

person.

Form 945, Annual Return of Withheld

50% of the total voting power of the

Federal Income Tax.

foreign corporation's stock, and

Schedule P (Form 1120-IC-DISC),

Its exclusive function is to hold title to

The trust fund recovery penalty may be

Intercompany Transfer Price or

real property located outside the United

imposed on all persons who are

Commission, explains the intercompany

States for the exclusive use (under lease

determined by the IRS to have been

pricing rules in more detail.

or otherwise) of the IC-DISC and

responsible for collecting, accounting for,

Section 994(c), Export

applicable foreign law forbids the IC-DISC

and paying over these taxes, and who

to hold title to the property.

Promotion Expenses

acted willfully in not doing so. The penalty

is equal to the unpaid trust fund tax. See

3. An associated foreign

These are expenses incurred to help

the Instructions for Form 720 or Pub. 15

corporation is a related foreign export

distribute or sell export property for use or

(Circular E), Employer's Tax Guide, for

corporation if:

distribution outside the United States.

details, including the definition of

The IC-DISC or a controlled group of

These expenses do not include income

responsible persons.

corporations to which the IC-DISC

tax, but do include 50% of the cost of

belongs owns less than 10% of the total

shipping the export property on

Other penalties. Other penalties may be

voting power of the foreign corporation's

U.S.-owned and U.S.-operated aircraft or

imposed for negligence, substantial

Instructions for Form 1120-IC-DISC (Rev. 9-2017)

-4-

Instructions For Form 1120-Ic-Disc - Interest Charge Domestic International Sales Corporation Return - 2017 Page 4

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