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Enter amounts paid for merchandise

costs and all indirect costs properly

Line 5. Other Costs

during the tax year on line 2. The amount

allocable to goods on hand at the

Enter on line 5 any costs paid or incurred

the IC-DISC may deduct for the tax year is

inventory date.

during the tax year not entered on lines 2

figured on line 8.

through 4.

Inventory may be valued below cost

All filers not using the cash method of

when the merchandise is unsalable at

accounting should see

Section 263A

Line 7. Inventory at End of Year

normal prices or unusable in the normal

uniform capitalization

rules, later, before

way because the goods are subnormal

See Regulations sections 1.263A-1

completing Schedule A.

due to damage, imperfections, shopwear,

through 1.263A-3 for details on figuring

etc., within the meaning of Regulations

If the IC-DISC uses intercompany

the amount of additional section 263A

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

pricing rules (for purchases from a related

costs to be included in ending inventory. If

valued at the current bona fide selling

supplier), use the transfer price figured in

the IC-DISC accounts for inventoriable

price, minus direct cost of disposition (but

Part II of Schedule P (Form

items in the same manner as materials

not less than scrap value) if such a price

1120-IC-DISC).

and supplies that are not incidental, enter

can be established.

on line 7 the portion of its merchandise

If the IC-DISC acts as another person's

purchased for resale that is included on

commission agent on a sale, do not enter

If this is the first year the Last-in,

line 6 and was not sold during the year.

any amount in Schedule A for the sale.

First-out (LIFO) inventory method was

See Schedule P (Form 1120-IC-DISC).

either adopted or extended to inventory

Lines 9a Through 9f. Inventory

goods not previously valued under the

Line 1. Inventory at Beginning

LIFO method provided in section 472,

Valuation Methods

attach Form 970, Application To Use LIFO

of Year

Inventories may be valued at:

Inventory Method, or a statement with the

Cost,

If the IC-DISC is changing its method of

information required by Form 970. Also

Cost or market value (whichever is

accounting for the current tax year, it must

check the LIFO box on line 9c. On line 9d,

lower), or

refigure last year's closing inventory using

enter the amount or the percent of total

Any other method approved by the IRS

the new method of accounting and enter

closing inventories covered under section

that conforms to the requirements of the

the result on line 1. If there is a difference

472. Estimates are acceptable.

applicable regulations cited later.

between last year's closing inventory and

the refigured amount, attach an

If the IC-DISC changed or extended its

However, if the IC-DISC is using the

explanation and take it into account when

inventory method to LIFO and had to write

cash method of accounting, it is required

figuring the IC-DISC's section 481(a)

up the opening inventory to cost in the

to use cost.

adjustment (explained later).

year of election, report the effect of the

write-up as other income (Schedule B,

IC-DISCs that account for inventoriable

line 2j or 3f), proportionately over a 3-year

Line 4. Additional Section 263A

items in the same manner as materials

period that begins with the year of the

Costs

and supplies that are not incidental may

LIFO election (section 472(d)).

currently deduct expenditures for direct

An entry is required on this line only for

labor and all indirect costs that would

IC-DISCs that have elected a simplified

For more information on inventory

otherwise be included in inventory costs.

valuation methods, see Pub. 538.

method of accounting.

The rolling average method of valuing

Schedule B

For IC-DISCs that have elected the

inventories generally does not clearly

simplified production method, additional

reflect income for federal income tax

Gross Income

section 263A costs are generally those

purposes. However, if an IC-DISC uses

costs, other than interest, that were not

If an income item falls into two or more

the average cost method for financial

capitalized under the IC-DISC's method of

categories, report each part on the

accounting purposes, there are two safe

accounting immediately prior to the

applicable line. For example, if interest

harbors under which this method will be

effective date of section 263A but are now

income consists of qualified interest from

deemed to clearly reflect income for

required to be capitalized under section

a foreign international sales corporation

federal income tax purposes. See Rev.

263A. For details, see Regulations section

and nonqualifying interest from a domestic

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

1.263A-2(b).

obligation, enter the qualified interest on

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

an attached statement for line 2g and the

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

For IC-DISCs that have elected the

nonqualifying interest on an attached

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

simplified resale method, additional

statement for line 3f.

successor.

section 263A costs are generally those

costs incurred with respect to the following

For gain from selling qualified export

IC-DISCs that use erroneous valuation

categories.

assets, attach a separate statement in

methods must change to a method

Off-site storage or warehousing.

addition to the forms required for lines 2h

permitted for federal income tax purposes.

and 2i.

Purchasing.

Use Form 3115 to make this change.

Handling, such as processing,

Nonaccrual experience method for

assembling, repackaging, and

service providers. Accrual method

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

transporting.

corporations are not required to accrue

for valuing inventories. Under lower of cost

General and administrative costs

certain amounts to be received from the

or market, the term “market” (for normal

(mixed service costs).

performance of certain services that, on

goods) means the current bid price

the basis of their experience, will not be

prevailing on the inventory valuation date

For details, see Regulations section

collected, if the corporation's average

for the particular merchandise in the

1.263A-3(d).

annual gross receipts for the 3 prior tax

volume usually purchased by the

years does not exceed $5 million.

Enter on line 4 the balance of section

taxpayer. If section 263A applies to the

263A costs paid or incurred during the tax

taxpayer, the basic elements of cost must

This provision does not apply to any

year not includible on lines 2, 3, and 5.

reflect the current bid price of all direct

amount if interest is required to be paid on

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

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Instructions For Form 1120-Ic-Disc - Interest Charge Domestic International Sales Corporation Return - 2017 Page 6

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