Enter the corporation's EIN. If the corporation does not have an EIN, it must apply for one. An EIN may be applied for:

If the corporation has not received its EIN by the time the return is due, enter “Applied for” and the date you applied in the space for the EIN. For more details, see the instructions for Form SS-4.

Enter the IC-DISC's total assets (as determined by the accounting method regularly used in keeping the IC-DISC's books and records) at the end of the tax year. If there are no assets at the end of the tax year, enter -0-.

For rules of stock attribution, see section 267(c). If the owner of the voting stock of the IC-DISC was an alien individual or a foreign corporation, partnership, trust, or estate, check the “Yes” box in the “Foreign owner” column and enter the name of the owner's country, in parentheses, in the address column. “Owner's country” for individuals is their country of residence; for other foreign entities, it is the country in which organized or otherwise created, or in which administered.

The net operating loss deduction is the amount of the net operating loss carryover and carryback that may be deducted in the tax year. See section 172 for details.

If the IC-DISC uses either the gross receipts method or combined taxable income method to compute the IC-DISC's taxable income attributable to any transactions involving products or product lines, attach Schedule P (Form 1120-IC-DISC). Show in detail the IC-DISC's taxable income attributable to each such transaction or group of transactions.

Enter the credit from Form 4136.

If the corporation was billed after February 28, 2003, and before August 1, 2006, for the federal telephone excise tax on long distance or bundled service, the corporation may be able to request a credit for the tax paid. The corporation had bundled service if its local and long distance service was provided under a plan that does not separately state the charge for local service. The corporation may not request the credit if it has already received a credit or refund from its service provider. If the corporation requests the credit, it may not ask its service provider for a credit or refund and must withdraw any request previously submitted to its provider.

The corporation may request the credit by attaching Form 8913, Credit for Federal Excise Tax Paid, showing the actual amount the corporation paid. The corporation also may be able to request the credit based on an estimate of the amount paid. See Form 8913 for details. In either case, the corporation must keep records to substantiate the amount of the credit requested.

If the IC-DISC is changing its method of accounting for the current tax year, it must refigure last year's closing inventory using the new method of accounting and enter the result on line 1. If there is a difference between last year's closing inventory and the refigured amount, attach an explanation and take it into account when figuring the IC-DISC's section 481(a) adjustment (explained on page 8).

An entry is required on this line only for IC-DISCs that have elected a simplified method of accounting.

For IC-DISCs that have elected the simplified production method, additional section 263A costs are generally those costs, other than interest, that were not capitalized under the IC-DISC's method of accounting immediately prior to the effective date of section 263A but are now required to be capitalized under section 263A. For details, see Regulations section 1.263A-2(b).

For IC-DISCs that have elected the simplified resale method, additional section 263A costs are generally those costs incurred with respect to the following categories.

For details, see Regulations section 1.263A-3(d).

Enter on line 4 the balance of section 263A costs paid or incurred during the tax year not includible on lines 2, 3, and 5.

Enter on line 5 any costs paid or incurred during the tax year not entered on lines 2 through 4.

See Regulations sections 1.263A-1 through 1.263A-3 for details on figuring the amount of additional section 263A costs to be included in ending inventory. If the IC-DISC accounts for inventoriable items in the same manner as materials and supplies that are not incidental, enter on line 7 the portion of its merchandise purchased for resale that is included on line 6 and was not sold during the year.

Inventories may be valued at:

However, if the IC-DISC is using the cash method of accounting, it is required to use cost.

IC-DISCs that account for inventoriable items in the same manner as materials and supplies that are not incidental may currently deduct expenditures for direct labor and all indirect costs that would otherwise be included in inventory costs.

The average cost (rolling average) method of valuing inventories generally does not conform to the requirements of the regulations. See Rev. Rul. 71-234, 1971-1 C.B. 148.

IC-DISCs that use erroneous valuation methods must change to a method permitted for Federal income tax purposes. Use Form 3115 to make this change.

On line 9a, check the method(s) used for valuing inventories. Under lower of cost or market, the term “market” (for normal goods) means the current bid price prevailing on the inventory valuation date for the particular merchandise in the volume usually purchased by the taxpayer. If section 263A applies to the taxpayer, the basic elements of cost must reflect the current bid price of all direct costs and all indirect costs properly allocable to goods on hand at the inventory date.

Inventory may be valued below cost when the merchandise is unsalable at normal prices or unusable in the normal way because the goods are subnormal due to damage, imperfections, shopwear, etc., within the meaning of Regulations section 1.471-2(c). The goods may be valued at the current bona fide selling price, minus direct cost of disposition (but not less than scrap value) if such a price can be established.

If this is the first year the Last-in, First-out (LIFO) inventory method was either adopted or extended to inventory goods not previously valued under the LIFO method provided in section 472, attach Form 970, Application To Use LIFO Inventory Method, or a statement with the information required by Form 970. Also check the LIFO box on line 9c. On line 9d, enter the amount or the percent of total closing inventories covered under section 472. Estimates are acceptable.

If the IC-DISC changed or extended its inventory method to LIFO and had to write up the opening inventory to cost in the year of election, report the effect of the write-up as other income (on page 2, Schedule B, line 2j or 3f), proportionately over a 3-year period that begins with the year of the LIFO election (section 472(d)).

For more information on inventory valuation methods, see Pub. 538.

If the IC-DISC received commissions on selling or renting property or furnishing services, list in column (b) the gross receipts from the sales, rentals, or services on which the commissions arose, and in column (c), list the commissions earned. In column (d) report receipts from noncommissioned sales or rentals of property or furnishing of services, as well as all other receipts.

For purposes of completing line 1a and line 1b, related purchasers are members of the same controlled group (as defined in section 993(a)(3)) as the IC-DISC. All other purchasers are unrelated.

A qualified export sale or lease must meet a use test and a destination test in order to qualify.

The use test applies at the time of the sale or lease. If the property is used predominantly outside the United States and the sale or lease is not for ultimate use in the United States, it is a qualified export sale or lease. Otherwise, if a reasonable person would believe that the property will be used in the United States, the sale or lease is not a qualified export sale or lease. For example, if property is sold to a foreign wholesaler and it is known in trade circles that the wholesaler, to a substantial extent, supplies the U.S. retail market, the sale would not be a qualified export sale, and the receipts would not be qualified export receipts.

Regardless of where title or risk of loss shifts from the seller or lessor, the property must be delivered under one of the following conditions to meet the destination test:

Enter dividends (except those received on debt-financed stock acquired after July 18, 1984-see section 246A) that:

Report so-called dividends or earnings received from mutual savings banks, etc., as interest. Do not treat them as dividends.

Enter on line 2:

Enter dividends that are:

Dividends received on debt-financed stock acquired after July 18, 1984, are not entitled to the full 70% or 80% dividends-received deduction. The 70% or 80% deduction is reduced by a percentage that is related to the amount of debt incurred to acquire the stock. See section 246A. Also see section 245(a) before making this computation for an additional limitation that applies to dividends received from foreign corporations. Attach a schedule to Form 1120-IC-DISC showing how the amount on line 3, column (c), was figured.

Enter dividends received on the preferred stock of a less-than-20%-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.

Enter dividends received on preferred stock of a 20%-or-more-owned public utility that is subject to income tax and is allowed the deduction under section 247 for dividends paid.

Enter the U.S.-source portion of dividends that:

Enter the U.S.-source portion of dividends that are received from 20%-or-more-owned foreign corporations and that qualify for the 80% deduction under section 245(a).

Enter dividends received from wholly owned foreign subsidiaries that are eligible for the 100% deduction under section 245(b).

In general, the deduction under section 245(b) applies to dividends paid out of the earnings and profits of a foreign corporation for a tax year during which:

Generally, line 9, column (c), may not exceed the amount from the worksheet below. However, in a year in which an NOL occurs, this limitation does not apply even if the loss is created by the dividends-received deduction. See sections 172(d) and 246(b).

Include the following:

Qualified dividends are dividends that qualify as qualified export receipts. They include all dividends (or amounts) includible in gross income (under section 951) that are attributable to stock of related foreign export corporations. See Qualified export receipts on page 4 and A related foreign export corporation on page 4 for more details.

Enter export promotion expenses on lines 1a through 1m. Export promotion expenses are an IC-DISC's ordinary and necessary expenses paid or incurred to obtain qualified export receipts. Do not include income taxes. Enter on lines 2a through 2g any part of an expense not incurred to obtain qualified export receipts.

Include on line 1c depreciation and the part of the cost of certain property that the corporation elected to expense under section 179. See Form 4562 and its instructions.

Enter the total salaries and wages paid for the tax year. Do not include salaries and wages deductible elsewhere on the return, such as amounts included in officers' compensation, cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

Enter 50% of the freight expenses (except insurance) for shipping export property aboard U.S. flagships and U.S.-owned and U.S.-operated aircraft in those cases where you are not required to use U.S. ships or aircraft by law or regulations.

Enter deductible officers' compensation on line 1i. Attach a schedule showing the name, social security number, and amount of compensation paid to all officers. Do not include compensation deductible elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

The IC-DISC determines who is an officer under the laws of the state where it is incorporated.

Enter the cost of incidental repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that do not add to the value of the property or appreciably prolong its life. New buildings, machinery, or permanent improvements that increase the value of the property are not deductible. They must be depreciated or amortized.

Enter the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers who maintain such a plan generally must file one of the forms listed below, even if the plan is not a qualified plan under the Internal Revenue Code. The filing requirement applies even if the IC-DISC does not claim a deduction for the current tax year. There are penalties for failure to file these forms on time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f).

Enter contributions to employee benefit programs not claimed elsewhere on the return (e.g., insurance, health and welfare programs, etc.) that are not an incidental part of a pension, profit-sharing, etc., plan included on line 1k.

Enter any other allowable export promotion expenses not claimed elsewhere on the return.

The IC-DISC must use the specific chargeoff method of accounting for bad debts and may only deduct business bad debts when they become wholly or partially worthless.

Enter taxes paid or accrued during the tax year, but do not include the following:

See section 164(d) for apportionment of taxes on real property between seller and purchaser.

Do not deduct the following interest:

Special rules apply to:

Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c) and any unused charitable contributions carried over from prior years.

IC-DISCs reporting taxable income on the accrual method may elect to treat as paid during the tax year any contributions paid by the 15th day of the 3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax year. Attach a declaration to the return stating that the resolution authorizing the contributions was adopted by the board of directors during the tax year. The declaration must include the date the resolution was adopted. See Regulations section 1.170A-11.

Enter freight expense not deducted on line 1h as export promotion expense.

Enter any other allowable deduction not claimed on line 1 or lines 2a through 2f.

The IC-DISC may have to report a negative section 481(a) adjustment on line 2g. See Section 481(a) adjustment on page 8 for additional information.

Generally, a deduction may not be taken for any amount that is allocable to a class of exempt income. See section 265(b) for exceptions.

Special rules apply to the following expenses:

Enter gain recognized during the tax year on the sale or exchange of property, other than property which in the hands of the IC-DISC was a qualified export asset, previously transferred to the IC-DISC in a transaction in which the transferor realized gain but did not recognize the gain in whole or in part. See section 995(b)(1)(B). Show the computation of the gain on a separate schedule. Include no more of the IC-DISC's gain than the amount of gain the transferor did not recognize on the earlier transfer.

Enter gain recognized on the sale or exchange of property described in section 995(b)(1)(C). Show the computation of the gain on a separate schedule. Do not include any gain included in the computation of line 2. Include only the amount of the IC-DISC's gain that the transferor did not recognize on the earlier transfer and that would have been treated as ordinary income if the property had been sold or exchanged rather than transferred to the IC-DISC. Do not include gain on the sale or exchange of IC-DISC stock-in-trade or other property that either would be included in inventory if on hand at the end of the tax year or is held primarily for sale in the normal course of business.

Enter 50% of taxable income attributable to military property (section 995(b)(1)(D)). Show the computation of this income. To figure taxable income attributable to military property, use the gross income attributable to military property for the year and the deductions properly allocated to that income. See Regulations section 1.995-6.

Line 9 provides for the computation of the one-seventeenth deemed distribution of section 995(b)(1)(F)(i). Line 9 only applies to shareholders of the IC-DISC that are C corporations.

An IC-DISC is deemed to distribute any income that resulted from cooperating with an international boycott (section 995(b)(1)(F)(ii)). See Form 5713 to figure this deemed distribution and for reporting requirements for any IC-DISC with operations related to a boycotting country.

An IC-DISC is deemed to distribute the amount of any illegal payments, such as bribes or kickbacks, that it pays, directly or indirectly, to government officials, employees, or agents (section 995(b)(1)(F)(iii)).

Attach a computation showing the earnings and profits for the tax year. See section 312 for rules on figuring earnings and profits for the purpose of the section 995(b)(1) limitation.

If there were no commission sales, leases, rentals, or services for the tax year, enter on line 1, Part II, the total of lines 1c and 2k, column (e), Schedule B.

If there were commission sales, leases, rentals, or services for the tax year, the total qualified export receipts to be entered on line 1, Part II, are figured as follows (section 993(f)):

If the IC-DISC is a member of a controlled group (as defined in section 993(a)(3)) that includes more than one IC-DISC, only one $10 million limit is allowed to the group. If an allocation is required, a statement showing each member's portion of the $10 million limit must be attached to Form 1120-IC-DISC. See Proposed Regulations section 1.995-8(f) for details.

The $10 million limit (or the controlled group member's share) is prorated on a daily basis. Thus, for example, if, for its 2006 calendar tax year, an IC-DISC has a short tax year of 73 days, and it is not a member of a controlled group, the limit that would be entered on line 5 of Part II is $2,000,000 (73/365 times $10 million).

Enter the taxable income attributable to line 6, qualified export receipts. The IC-DISC may select the qualified export receipts to which the line 5 limitation is allocated.

See Proposed Regulations section 1.995-8 for details on determining the IC-DISC's taxable income attributable to qualified export receipts in excess of the $10 million amount. Special rules are provided for allocating the taxable income attributable to any related and subsidiary services, and for the ratable allocation of the taxable income attributable to the first transaction selected by the IC-DISC that exceeds the $10 million amount. Deductions must be allocated and apportioned according to the rules of Regulations section 1.861-8. The selection of the excess receipts by the IC-DISC is intended to permit the IC-DISC to allocate the $10 million limitation to the qualified export receipts of those transactions occurring during the tax year that permit the greatest amount of taxable income to be allocated to the IC-DISC under the intercompany pricing rules of section 994.

To avoid double counting of the deemed distribution, if an amount of taxable income for the tax year attributable to excess qualified export receipts is also deemed distributed under either line 1, 2, 3, or 4 of Part I, such amount of taxable income is only includible on that line of Part I, and must be subtracted from the amount otherwise reportable on line 7 of Part II and carried to line 5 of Part I. See Proposed Regulations section 1.995-8(d).

After filing the IC-DISC's 2006 tax return, the allocation of the $10 million limitation and the computation of the line 7 deemed distribution may be changed by filing an amended Form 1120-IC-DISC only under the conditions specified in Proposed Regulations section 1.995-8(b)(1).

If the corporation is required to pay interest under section 992(c)(2)(B) on the amount of a distribution to meet the qualification requirements of section 992(c), report this interest on line 2c, Schedule E. Also include the amount on line 1, Part IV of Schedule J and show the computation of the interest on an attached schedule.

Report on line 4a all actual distributions of previously taxed income. Also, include any distributions of pre-1985 accumulated DISC income that are nontaxable (see the instructions for Schedule L, line 12, below). Enter on the dotted line to the left of the line 4a amount, the dollar amount of the distribution that is nontaxable pre-1985 DISC income and identify it as such. Do not include distributions of pre-1985 DISC income that are made under section 995(b)(2) because of prior year revocations or disqualifications.

If the corporation was a qualified DISC as of December 31, 1984, the accumulated pre-1985 DISC income will generally be treated as previously taxed income (exempt from tax) when distributed to DISC shareholders after December 31, 1984.

Accumulated IC-DISC income (for periods after 1984) is accounted for on line 13 of Schedule L. The balance of this account is used in figuring deferred DISC income in Part V of Schedule J.

Enter in line 1a the code number and percentage of total export gross receipts (defined below), for the product or service that accounts for the largest portion of the IC-DISC's export gross receipts. The product codes are on page 16 of these instructions. On line 1b enter the same information for the IC-DISC's next largest product or service.

Enter on line 3 the name, address, and identifying number of related U.S. persons in your controlled group.