Schedule J
Deemed and Actual Distributions and Deferred DISC Income for the Tax Year
Part I - Deemed Distributions Under Section 995(b)(1)
Line 2 - Recognized Gain on Section 995(b)(1)(B) Property
Enter gain recognized during the tax year on the sale or exchange of property, which in the hands of the IC-DISC was not a qualified export asset
and which was 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.
Line 3 - Recognized Gain on Section 995(b)(1)(C) Property
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.
Line 4 - Income Attributable to Military Property
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 - Deemed Distributions to
C Corporations
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.
Line 10 - International Boycott Income
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.
Line 11 - Illegal Bribes, etc.
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)).
Line 14 - Earnings and Profits
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.
Line 17 - Foreign Investment Attributable to Producer Loans
Line 17a - For shareholders other than
C corporations.
To figure the amount for line 17a, attach a computation showing (1) the IC-DISC's foreign investment in producer's loans during the tax
year; (2) accumulated earnings and profits (including earnings and profits for the 2001 tax year) minus the amount on line 15, Part I;
and (3) accumulated IC-DISC income. Enter the smallest of these amounts (but not less than zero) on line 17a.
Line 17b - For C corporation shareholders.
To figure the amount for line 17b, attach a computation showing (1) the IC-DISC's foreign investment in producer's loans during the tax
year; (2) accumulated earnings and profits (including earnings and profits for the 2001 tax year) minus the amount on line 16, Part I; and
(3) accumulated IC-DISC income. Enter the smallest of these amounts (but not less than zero) on line 17b.
For purposes of lines 17a and 17b, foreign investment in producer's loans is the smallest of (1) the net increase in foreign assets by
members of the controlled group (defined in section 993(a)(3)) to which the IC-DISC belongs; (2) the actual foreign investment by the
group's domestic members; or (3) the IC-DISC's outstanding producer's loans to members of the controlled group.
Net increase in foreign assets and actual foreign investment are defined in sections 995(d)(2) and (3).
See Regulations section 1.995-5 for additional information on computing foreign investment attributable to producer's loans.
Lines 20 and 21.
The percentages on lines 20 and 21 must add up to 100%.
Line 22.
Allocate the line 22 amount to shareholders that are individuals, partnerships, S corporations, trusts, and estates.
Part II - Section 995(b)(1)(E) Taxable Income
Generally, any taxable income of the IC-DISC attributable to qualified export receipts that exceed $10 million will be deemed distributed.
Line 1 - Export Receipts
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)):
| 1. |
Add lines 1c and 2k, column (b), Schedule B |
|
| 2. |
Add lines 1c and 2k, column (d), Schedule B |
|
| 3. |
Add lines 1 and 2. Enter on line 1, Part II, Schedule J |
|
Line 3 - Controlled Group Allocation
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.
Lines 4 and 5 - Proration of $10 Million Limit
The $10 million limit (or the controlled group member's share) is prorated on a daily basis. Thus, for example, if, for its 2001 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).
Line 7 - Taxable Income
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 2001 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).
Part III - Deemed Distributions Under Section 995(b)(2)
If the corporation is a former DISC or a former IC-DISC that revoked IC-DISC status or lost IC-DISC status for failure to satisfy one or more of
the conditions specified in section 992(a)(1) for 2001, each shareholder is deemed to have received a distribution taxable as a dividend on the last
day of the 2001 tax year. The deemed distribution equals the shareholder's prorated share of the DISC's or IC-DISC's income accumulated during the
years just before DISC or IC-DISC status ended. The shareholder will be deemed to receive the distribution in equal parts on the last day of each of
the 10 tax years of the corporation following the year of the termination or disqualification of the IC-DISC (but in no case over more than twice the
number of years the corporation was a DISC or IC-DISC).
Part IV - Actual Distributions
Line 1 - Distributions To Meet Section 992(c)(2)(B)
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.
Line 4a - Previously Taxed Income
Report on line 4a all actual distributions of previously taxed income. Also, include any distributions of pre-1985 accumulated DISC income that are
nontaxable. In the space to the left of the line 4a amount, enter the dollar amount of the distribution and identify it as nontaxable pre-1985 DISC
income. Do not include distributions of pre-1985 DISC income that are made under section 995(b)(2) because of prior year revocations or
disqualifications.
Part V - Deferred DISC Income Under Section 995(f)(3)
In general, deferred DISC income is:
- Accumulated IC-DISC income (for periods after 1984) of the IC-DISC as of the close of the computation year over
- The amount of distributions-in-excess-of-income for the tax year of the IC-DISC following the computation year.
For purposes of item 2 above, distributions-in-excess-of-income means the excess (if any) of:
- Actual distributions to shareholders out of accumulated IC-DISC income over
- The amount of IC-DISC income (as defined in section 996(f)(1)) for the tax year following the computation year.
For purposes of items 1 and 2 above, see section 995(f) and Proposed Regulations section 1.995(f)-1 for a definition of
computation year, examples, and other details on figuring deferred DISC income.
The amount on line 3, Part V, is allocated to each shareholder on line 10, Part III, of Schedule K (Form 1120-IC-DISC).
Shareholders of an IC-DISC must file Form 8404 if the IC-DISC reports deferred DISC income on line 10, Part III of Schedule K.
Schedule K
Shareholder's Statement of IC-DISC Distributions
Attach a separate Copy A, Schedule K (Form 1120-IC-DISC), to Form 1120-IC-DISC for each shareholder who received an actual or deemed distribution
during the tax year or to whom the corporation reported deferred DISC income for the tax year.
Schedule L
Balance Sheets per Books
The balance sheet should agree with the IC-DISC's books and records. Include certificates of deposits as cash on line 1.
Line 12 - Accumulated Pre-1985 DISC Income
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.
Exception:
The exemption does not apply to distributions of accumulated pre-1985 DISC income of an IC-DISC or former DISC that was made taxable under section
995(b)(2) because of a prior revocation of the DISC election or disqualification of the DISC. For more details on these distributions, see Temporary
Regulations section 1.921-1T(a)(7).
Line 13 - Accumulated IC-DISC Income
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.
Schedule N
Export Gross Receipts of the IC-DISC and Related U.S. Persons
Line 1
Product Code and Percentage
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.
Example:
An IC-DISC has export gross receipts of $10 million; selling agricultural chemicals accounts for $4.5 million (45%) of that amount, which is the
IC-DISC's largest product or service. The IC-DISC should enter 287 (the product code for agricultural chemicals) and 45% in line 1a.
Selling industrial chemicals accounts for $2 million (20% of the $10 million total), and is the IC-DISC's second largest product or service. The
IC-DISC should enter 281 (the product code for industrial inorganic and organic chemicals) and 20% in line 1b.
Line 2
Definitions
Export gross receipts
are receipts from any of the following:
- Providing engineering or architectural services for construction projects located outside the United States.
- Selling for direct use, consumption, or disposition outside the United States, property (such as inventory) produced in the United
States.
- Renting this property to unrelated persons for use outside the United States.
- Providing services involved in such a sale or rental.
- Providing export management services.
For commission sales, export gross receipts include the total receipts on which the IC-DISC earned the commission.
For purposes of line 2, Schedule N only, no reduction is to be made for receipts attributable to military property. Therefore, an IC-DISC's export
gross receipts for purposes of line 2 is the total of the amounts from page 2, Schedule B, columns (b) and (d) of lines 1c, 2a, 2b, 2c, and 2d.
Related persons
are:
- An individual, partnership, estate, or trust that controls the IC-DISC.
- A corporation that controls the IC-DISC or is controlled by it.
- A corporation controlled by the same person or persons who control the IC-DISC.
Control
means direct or indirect ownership of more than 50% of the total voting power of all classes of stock entitled to vote. See section 993(a)(3).
U.S. person
is:
- A citizen or resident of the United States, which includes the Commonwealth of Puerto Rico and possessions of the United States.
- A domestic corporation or partnership.
- An estate or trust (other than a foreign estate or trust as defined in section 7701(a)(31)).
Export Gross Receipts for 2001
Column (a).
All IC-DISCs should complete column (a) in line 2. If two or more IC-DISCs are related persons, only the IC-DISC with the largest export gross
receipts should complete columns (b) and (c). If an IC-DISC acts as a commission agent for a related person, attribute the total amount of the
transaction to the IC-DISC.
Complete column (a) to report the IC-DISC's export gross receipts from all sources (including the United States) for the 2001 tax year.
Column (b) - Export gross receipts of related IC-DISCs.
Complete column (b) to report related IC-DISCs' export gross receipts from all sources (including the United States).
Column (c) - Export gross receipts of all other related U.S. persons.
Complete column (c) to report other related U.S. persons' export gross receipts from all sources except the United States.
Line 3
Related U.S. Persons
Enter on line 3 the name, address, and identifying number of related U.S. persons in your controlled group.
Schedule O
Other Information
Question 6 - Boycott of Israel.
If question 6a, 6b, or 6c is checked Yes, the IC-DISC must file Form 5713 and is also deemed to distribute part of its income. See Form 5713
for more information.
Question 7 - Tax-exempt interest.
Show any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder in a mutual fund or other
regulated investment company.
Schedule P
(Form 1120-IC-DISC)
Intercompany Transfer Price or Commission
Complete and attach a separate Schedule P (Form 1120-IC-DISC) for each transaction or group of transactions to which you apply the intercompany
pricing rules of section 994(a)(1) and (2).
Paperwork Reduction Act Notice.
We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information.
We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid
OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the
administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.
The time needed to complete and file the following forms will vary depending on individual circumstances. The estimated average times are:
| Form |
Recordkeeping |
Learning about the law or the form |
Preparing the form |
Copying, assembling, and sending the form to the IRS |
| 1120-IC-DISC |
94 hr., 56 min. |
20 hr., 11 min. |
31 hr., 00 min. |
2 hr., 24 min. |
| Schedule K |
4 hr., 4 min. |
18 min. |
22 min. |
|
| Schedule P |
12 hr., 40 min. |
1 hr., 29 min. |
1 hr., 46 min. |
|
If you have comments concerning the accuracy of these time estimates or suggestions for making these forms simpler, we would be happy to hear from
you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send these tax forms
to this office. Instead, see Where To File on page 3.
Codes for Principal Activity
Product Code System for Schedule N
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