Changes To Note

• For tax years ending on or after December 31, 2001, certain corporations with average annual gross receipts of more than $1 million but less than or equal to $10 million may be able to adopt or change to the cash method of accounting for eligible trades or businesses. This rule does not apply to corporations prohibited from using the cash method under section 448. For more details, including change in accounting method requirements, see Notice 2001-76, 2001-52 I.R.B. 614.
• The IC-DISC may need to mail its return to a different service center this year because the IRS has changed the filing location for several areas. See Where To File on page 3.

Photographs of Missing Children

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Unresolved Tax Issues

If the corporation has attempted to deal with an IRS problem unsuccessfully, it should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents the corporation's interests and concerns within the IRS by protecting its rights and resolving problems that have not been fixed through normal channels.

While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that the corporation's case is given a complete and impartial review.

The corporation's assigned personal advocate will listen to its point of view and will work with the corporation to address its concerns. The corporation can expect the advocate to provide:

• A fresh look at a new or on-going problem.
• Timely acknowledgement.
• The name and phone number of the individual assigned to its case.
• Updates on progress.
• Timeframes for action.
• Speedy resolution.
• Courteous service.

When contacting the Taxpayer Advocate, the corporation should provide the following information:

• The corporation's name, address, and employer identification number (EIN).
• The name and telephone number of an authorized contact person and the hours he or she can be reached.
• The type of tax return and year(s) involved.
• A detailed description of the problem.
• Previous attempts to solve the problem and the office that had been contacted.
• A description of the hardship the corporation is facing (if applicable).

The corporation may contact a Taxpayer Advocate by calling 1-877-777-4778 (toll free). Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for the Taxpayer Advocate assistance. If the corporation prefers, it may call, write, or fax the Taxpayer Advocate office in its area. See Pub. 1546, The Taxpayer Advocate Service of the IRS, for a list of addresses and fax numbers.

How To Make a Contribution To Reduce the Public Debt

To help reduce the public debt, make a check payable to the: Bureau of the Public Debt. Send it to Bureau of the Public Debt, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. Or, enclose a check with Form 1120-IC-DISC. Contributions to reduce the public debt are deductible subject to the rules and limitations for charitable contributions.

How To Get Forms and Publications

Personal computer. You can access the IRS Web Site 24 hours a day, 7 days a week at www.irs.gov to:

• Download forms, instructions, and publications.
• See answers to frequently asked tax questions.
• Search publications on-line by topic or keyword.
• Send us comments or request help by e-mail.
• Sign up to receive local and national tax news by e-mail.

You can also reach us using file transfer protocol at ftp.irs.gov.

CD-ROM. Order Pub. 1796, Federal Tax Products on CD-ROM, and get:

• Current year forms, instructions, and publications.
• Prior year forms, instructions, and publications.
• Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• The Internal Revenue Bulletin.

Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $21 (no handling fee), or call 1-877-CDFORMS (1-877-233-6767) toll-free to buy the CD-ROM for $21 (plus a $5 handling fee).

By phone and in person. You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.

General Instructions

Purpose of Form

Form 1120-IC-DISC is an information return filed by interest charge domestic international sales corporations (IC-DISCs), former DISCs, and former IC-DISCs.

What Is an IC-DISC?

An IC-DISC is a domestic corporation that has elected to be an IC-DISC and its election is still in effect. The IC-DISC election is made by filing Form 4876-A, Election To Be Treated as an Interest Charge DISC.

Generally, an IC-DISC is not taxed on its income. Shareholders of an IC-DISC are taxed on its income when the income is actually (or deemed) distributed. In addition, section 995(f) imposes an interest charge on shareholders for their share of DISC-related deferred tax liability. See Form 8404, Interest Charge on DISC-Related Deferred Tax Liability, for details.

To be an IC-DISC, a corporation must be organized under the laws of a state or the District of Columbia and meet the following tests.

• At least 95% of its gross receipts during the tax year are qualified export receipts.
• At the end of the tax year, the adjusted basis of its qualified export assets is at least 95% of the sum of the adjusted basis of all its assets.
• It has only one class of stock, and its outstanding stock has a par or stated value of at least $2,500 on each day of the tax year (or for a new corporation on the last day to elect IC-DISC status for the year and on each later day).
• It maintains separate books and records for the tax year.
• It is not a member of any controlled group of which a foreign sales corporation (FSC) is a member.
• Its tax year must conform to the tax year of the principal shareholder who at the beginning of the tax year has the highest percentage of voting power. If two or more shareholders have the highest percentage of voting power, the IC-DISC must elect a tax year that conforms to that of any one of the principal shareholders. See section 441(h) and its regulations for more information.
• Its election to be treated as an IC-DISC is in effect for the tax year.

See Definitions on page 5 and section 992 and related regulations for details.

Distribution to meet qualification requirements.

• An IC-DISC that does not meet the gross receipts test or qualified export asset test during the tax year will still be considered to have met them if, after the tax year ends, the IC-DISC makes a pro rata property distribution to its shareholders and specifies at the time that this is a distribution to meet the qualification requirements.
• If the IC-DISC did not meet the gross receipts test, the distribution equals the part of its taxable income attributable to gross receipts that are not qualified export gross receipts.
• If it did not meet the qualified export asset test, the distribution equals the fair market value of the assets that are not qualified export assets on the last day of the tax year.
• If the IC-DISC did not meet either test, the distribution equals the sum of both amounts.

Regulations section 1.992-3 explains how to figure the distribution.

Interest on late distribution. If the IC-DISC makes a distribution after Form 1120-IC-DISC is due, interest must be paid to the United States Treasury. The interest charge is 4½% of the distribution times the number of tax years that begin after the tax year to which the distribution relates until the date the IC-DISC made the distribution.

If the IC-DISC must pay this interest, send the payment to the Internal Revenue Service Center where you filed Form 1120-IC-DISC within 30 days of making the distribution. On the payment, write the IC-DISC's name, address, and employer identification number; the tax year; and a statement that the payment represents the interest charge under Regulations section 1.992-3(c)(4).

Where To File

Where To File

File the IC-DISC's return at the applicable IRS address listed below.

If the corporation's principal business, office, or agency is located in:	And the total assets at the end of the tax year (Form 1120-IC-DISC, page 1, item E) are:	Use the following Internal Revenue Service Center address:
Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, Wisconsin	Less than $10 million $10 million or more	Cincinnati, OH 45999-0012 Ogden, UT 84201-0012
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming	Any amount	Ogden, UT 84201-0012
A foreign country or U.S. possession (or the corporation is claiming the possessions corporation tax credit under sections 30A and 936)	Any amount	Philadelphia, PA 19255-0012

A group of corporations with members located in more than one service center area will often keep all the books and records at the principal office of the managing corporation. In this case, the tax returns of the corporations may be filed with the service center for the area in which the principal office of the managing corporation is located.

Who Must File

The corporation must file Form 1120-IC-DISC if it elected, by filing Form 4876-A, to be treated as an IC-DISC and its election is in effect for the tax year.

If the corporation is a former DISC or former IC-DISC, it must file Form 1120-IC-DISC in addition to any other return required.

A former DISC is a corporation that was a DISC on or before December 31, 1984, but failed to qualify as a DISC after December 31, 1984, or did not elect to be an IC-DISC after 1984; and at the beginning of the current tax year, it had undistributed income that was previously taxed or it had accumulated DISC income.

A former IC-DISC is a corporation that was an IC-DISC in an earlier year but did not qualify as an IC-DISC for the current tax year; and at the beginning of the current tax year, it had undistributed income that was previously taxed or accumulated IC-DISC income. See section 992 and related regulations.

A former DISC or former IC-DISC need not complete lines 1 through 8 on page 1 and the Schedules for figuring taxable income, but must complete Schedules J, L, and M of Form 1120-IC-DISC and Schedule K (Form 1120-IC-DISC). Write Former DISC or Former IC-DISC across the top of the return.

When To File

File Form 1120-IC-DISC by the 15th day of the 9th month after the tax year ends. No extensions are allowed. If the due date falls on a Saturday, Sunday, or a legal holiday, the corporation may file on the next business day.

Private delivery services. Corporations can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. The most recent list of designated private delivery services was published by the IRS in October 2001.

This list includes only the following:

• Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
• DHL Worldwide Express (DHL): DHL "Same Day" Service, DHL USA Overnight.
• Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day.
• United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The private delivery service can tell you how to get written proof of the mailing date.

Who Must Sign

The return must be signed and dated by:

• The president, vice president, treasurer, assistant treasurer, chief accounting officer, or
• Any other corporate officer (such as tax officer) authorized to sign.

Receivers, trustees, or assignees must also sign and date any return filed on behalf of a corporation.

If an employee of the corporation completes Form 1120-IC-DISC, the paid preparer's space should remain blank. In addition, anyone who prepares Form 1120-IC-DISC but does not charge the corporation should not complete that section. Generally, anyone who is paid to prepare Form 1120-IC-DISC must sign it and fill in the Paid Preparer's Use Only area.

The paid preparer must complete the required preparer information and -

• Sign the return, by hand, in the space provided for the preparer's signature (signature stamps or labels are not acceptable).
• Give a copy of the return to the taxpayer.

Other Forms, Returns, Schedules, and Statements That May Be Required

Forms

An IC-DISC may have to file some of the following forms. See the form for more information.

• Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. Use these forms to report wages, tips, and other compensation, and withheld income, social security and Medicare taxes for employees.
• Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Use this form to report certain transfers to foreign corporations under section 6038B.
• Form 940 or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return. The corporation may be liable for FUTA tax and may have to file Form 940 or 940-EZ if either of the following applies.
  1. It paid wages of $1,500 or more in any calendar quarter in 2000 or 2001 or
  2. It had at least one employee who worked for the corporation for some part of a day in 20 or more different weeks in 2000 or 20 or more different weeks in 2001.
• Form 941, Employer's Quarterly Federal Tax Return. Employers must file this form to report income tax withheld, and employer and employee social security and Medicare taxes. Also, see Trust fund recovery penalty on page 6.
• Form 945, Annual Return of Withheld Federal Income Tax. File Form 945 to report income tax withheld from nonpayroll distributions or payments, including pensions, annuities, IRAs, gambling winnings, and backup withholding. See Trust fund recovery penalty on page 6.
• Form 966, Corporate Dissolution or Liquidation. Use this form to report the adoption of a resolution or plan to dissolve the corporation or liquidate any of its stock.
• Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and
• Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. Use these forms to report and send withheld tax on payments or distributions made to nonresident alien individuals, foreign partnerships, or foreign corporations to the extent these payments constitute gross income from sources within the United States (see sections 861 through 865).
• Form 1096, Annual Summary and Transmittal of U.S. Information Returns.
• Forms 1099. Use these information returns to report the following:
  1. 1099-A, Acquisition or Abandonment of Secured Property.
  2. 1099-B, Proceeds From Broker and Barter Exchange Transactions.
  3. 1099-C, Cancellation of Debt.
  4. 1099-DIV, Dividends and Distributions.
  5. 1099-INT, Interest Income.
  6. 1099-MISC, Miscellaneous Income. Use this form to report payments: to certain fishing boat crew members, to providers of health and medical services, of rent or royalties, of nonemployee compensation, etc.

     Note: Every corporation must file Form 1099-MISC if it makes payments of rents, commissions, or other fixed or determinable income (see section 6041) totaling $600 or more to any one U.S. person in the course of its trade or business during the calendar year.

  7. 1099-OID, Original Issue Discount.

  Also use these returns to report amounts received as a nominee for another person.

• Form 4876-A, Election To Be Treated as an Interest Charge DISC.
• Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. This form is required if the corporation controls a foreign corporation; acquires, disposes of, or owns 10% or more in value or vote of the outstanding stock of a foreign corporation; or had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of the foreign corporation. See Question 4 of Schedule N (Form 1120).
• Form 5713, International Boycott Report. Corporations that had operations in, or related to, certain boycotting countries file Form 5713.
• Form 8275, Disclosure Statement, and Form 8275-R, Regulation Disclosure Statement. Disclose items or positions taken on a tax return that are not otherwise adequately disclosed on a tax return or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties).
• Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Use this form to report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of related transactions.
• Form 8404, Interest Charge on DISC-Related Deferred Tax Liability. Shareholders use this form to figure and report their interest on DISC-related deferred tax liability.
• Form 8594, Asset Allocation Statement Under Sections 338 and 1060. Corporations file this form to report the purchase or sale of a group of assets that constitute a trade or business if goodwill or going concern value could attach to the assets and if the buyer's basis in the assets is determined only by the amount paid for the assets.
• Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. A domestic corporation may have to file Form 8865 if it:
  1. Controlled a foreign partnership (i.e., owned more than a 50% direct or indirect interest in the partnership).
  2. Owned at least a 10% direct or indirect interest in a foreign partnership while U.S. persons controlled that partnership.
  3. Had an acquisition, disposition, or change in proportional interest in a foreign partnership that:
     1. Increased its direct interest to at least 10% or reduced its direct interest of at least 10% to less than 10%.
     2. Changed its direct interest by at least a 10% interest.
  4. Contributed property to a foreign partnership in exchange for a partnership interest if:
     1. Immediately after the contribution, the corporation owned, directly or indirectly, at least a 10% interest in the foreign partnership or
     2. The fair market value of the property the corporation contributed to the foreign partnership, when added to other contributions of property made to the foreign partnership during the preceding 12-month period, exceeds $100,000.

        Also, the domestic corporation may have to file Form 8865 to report certain dispositions by a foreign partnership of property it previously contributed to that partnership if it was a partner at the time of the disposition.

        For more details, including penalties for failing to file Form 8865, see Form 8865 and its separate instructions.

• Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method. Figure the interest due or to be refunded under the look-back method of section 167(g)(2) for property placed in service after September 13, 1995, that is depreciated under the income forecast method.

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