2006 Instructions for Form 1120-FSC U.S. Income Tax Return of a Foreign Sales Corporation

Transcription

1 2006 Instructions for Form 1120-FSC U.S. Income Tax Return of a Foreign Sales Corporation Department of the Treasury Internal Revenue Service Section references are to the Internal The Tax Increase Prevention and Timeframes for action, Revenue Code unless otherwise noted. Reconciliation Act of 2005 repealed the Speedy resolution, and foreign sales corporation (FSC) binding Courteous service. Contents Page contract exception. See Binding contract What s New...1 exception on page 2 for details. When contacting the Taxpayer Advocate, Photographs of Missing Children Cash contributions made in tax years the FSC should be prepared to provide the Unresolved Tax Issues... 1 beginning after August 17, 2006, must be following information: How To Get Forms and supported by a dated bank record or receipt. The FSC s name, address, and employer Publications...1 See section 170 for additional information. identification number. General Instructions...2 The larger deductions for contributions of The name and telephone number of an Purpose of Form...2 certain food inventory and qualified book authorized contact person and the hours he contributions to certain schools have been or she can be reached. FSC Repeal and Extraterritorial extended through December 31, See The type of tax return and year(s) Income Exclusion...2 section 170 for additional information. involved. Pre-Repeal FSC Rules...2 Corporations that paid the federal A detailed description of the problem. Who Must File telephone excise tax on long distance or Previous attempts to solve the problem When To File bundled service may be able to request a and the office that was contacted. Where To File credit. See the instructions for line 2h on A description of the hardship the FSC is Who Must Sign...4 page 7. facing and supporting documentation (if Paid Preparer Authorization...4 Controlled groups must complete new applicable). Other Forms and Statements Schedule O (Form 1120), Consent Plan and The FSC can contact a Taxpayer That May Be Required...4 Apportionment Schedule for a Controlled Advocate as follows: Assembling the Return... 5 Group, before completing Schedule J. See Call the Taxpayer Advocate s toll-free Accounting Methods... 5 the Instructions for Schedule O. number: Accounting Period... 5 Call, write, or fax the Taxpayer Advocate Rounding Off To Whole Dollars Photographs of office in its area (see Pub for Recordkeeping...5 addresses and phone numbers). Missing Children Payment of Tax Due...5 TTY/TDD help is available by calling Estimated Tax Payments...6 The Internal Revenue Service is a proud partner with the National Center for Missing Interest and Penalties...6 Visit the website at and Exploited Children. Photographs of Specific Instructions...6 missing children selected by the Center may Tax and Payments...7 appear in instructions on pages that would How To Get Forms Schedule A Cost of Goods Sold otherwise be blank. You can help bring and Publications Related To Foreign Trading these children home by looking at the Gross Receipts...7 photographs and calling THE-LOST Internet. You can access the IRS website Additional Information... 8 ( ) if you recognize a child. 24 hours a day, 7 days a week, at Schedule B Taxable Income or gov to: (Loss)... 8 Unresolved Tax Issues Download forms, instructions, and Schedule E Exemption publications; If the FSC has attempted to deal with an Percentages Used in Figuring Order IRS products online; IRS problem unsuccessfully, it should Exempt Foreign Trade Income Research your tax questions online; contact the Taxpayer Advocate. The Search publications online by topic or Schedule F Net Income From Taxpayer Advocate independently keyword; and Nonexempt Foreign Trade represents the FSC s interests and concerns Sign up to receive local and national tax Income and Taxable Nonforeign within the IRS by protecting its rights and news by . Trade Income...9 resolving problems that have not been fixed Schedule G Deductions through normal channels. IRS Tax Products CD. You can order Pub. Allocated or Apportioned to While Taxpayer Advocates may not 1796, IRS Tax Products CD, and obtain: Foreign Trade Income Other change the tax law or make a technical tax Current year forms, instructions, and Than Foreign Trade Income decision, they may clear up problems that publications, Reported on Schedule F resulted from previous contacts and ensure Prior year forms, instructions, and Schedule J Tax Computation that the FSC s case is given a complete and publications, Schedule L Balance Sheets per impartial review. Bonus: Historical Tax Products DVD Books The FSC s assigned personal advocate Ships with the final release, Schedule M will listen to its point of view and will work Tax Map: an electronic research tool and Principal Business Activity Codes with the FSC to address its concerns. The finding aid, FSC can expect the advocate to provide: Tax law frequently asked questions A fresh look at a new or on-going (FAQs), What s New problem, Tax topics from the IRS telephone Timely acknowledgment, response system, The IRS has changed the filing address The name and phone number of the Fill-in, print, and save features for most for Form 1120-FSC. See Where To File on individual assigned to its case, tax form, page 4. Updates on progress, Internal Revenue Bulletins, and Cat. No V

2 Information on how to access toll-free and purchase, renewal, or replacement option technical support. that is enforceable against a lessor or seller Pre-Repeal FSC Rules This CD is released twice during the (provided the option is part of a contract that is binding and in effect on September 30, Definition of a Foreign year. The first release ships in the beginning of 2000, and has remained in effect). Sales Corporation (FSC) January The mere entering into of a single Under section 922(a), a FSC is defined as a The final release will ship the beginning of transaction, such as a lease, would not, in corporation that has met all of the following March and of itself, prevent the transaction from rules: Purchase the CD from the National being in the ordinary course of business. 1. It must be a corporation created or Technical Information Service at Election To Apply Exclusion Rules organized under the laws of a qualifying gov/cdorders for $25 (no handling fee) or Taxpayers may elect to apply the foreign country or any U.S. possession other call CDFORMS ( ) extraterritorial income exclusion rules than Puerto Rico. toll-free to buy the CD for $25 (plus a $5 instead of the FSC rules for transactions Qualifying U.S. possessions include handling fee). Price is subject to change. occurring during the transition period. The Guam, American Samoa, the By phone and in person. You can order election is: Commonwealth of the Northern Mariana forms and publications by calling Made by checking the box on line 2 of Islands, and the U.S. Virgin Islands TAX-FORM ( ). You Form 8873, A qualifying foreign country is a foreign can also get most forms and publications at Made on a transaction-by-transaction country that meets the exchange of your local IRS office. basis, information rules of section 927(e)(3)(A) or Effective for the tax year for which it is (B). All U.S. possessions other than Puerto made and for all subsequent tax years, and Rico are also certified to have met these Revocable only with the consent of the rules. General Instructions IRS. The following countries are qualifying Taxpayers use Form 8873 to determine foreign countries that have met the Purpose of Form their extraterritorial income exclusion. exchange of information rules of section Use Form 1120-FSC to report the income, 927(e)(3)(A) or 927(e)(3)(B): Australia, gains, losses, deductions, credits, and to Election To Be Treated as a Austria, Barbados, Belgium, Bermuda, figure the income tax liability of a FSC. Domestic Corporation Canada, Costa Rica, Cyprus, Denmark, A FSC that was in existence on September Dominica, the Dominican Republic, Egypt, FSC Repeal and 30, 2000, and at all times thereafter, may Finland, France, Germany, Grenada, elect to be treated as a domestic corporation Guyana, Honduras, Iceland, Ireland, Extraterritorial Income if substantially all of its gross receipts are Jamaica, Korea, Malta, the Marshall Islands, Exclusion foreign trading gross receipts. Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan, Peru, the In general, the FSC Repeal and The election is made by checking the Philippines, St. Lucia, Sweden, and Trinidad Extraterritorial Income Exclusion box on line 3 of Form An electing and Tobago. Act of 2000: corporation files Form 1120, U.S. 2. It had no more than 25 shareholders Repealed the FSC rules, Corporation Income Tax Return, or Form at any time during the tax year. Provided taxpayers with an exclusion, 1120-A, U.S. Corporation Short-Form 3. It had no preferred stock outstanding which is figured on Form 8873, Income Tax Return. Once made, the at any time during the tax year. Extraterritorial Income Exclusion, and election applies to the tax year for which it is 4. During the tax year, the FSC must Provided transition rules for existing made and remains in effect for all maintain: FSCs. These rules are included in Rules for subsequent years unless the election is An office in one of the qualifying Existing FSCs below. revoked or terminated. If the election is foreign countries or U.S. possessions listed Note. The American Jobs Creation Act of revoked or terminated, the corporation above, 2004 repealed the extraterritorial income would be a foreign corporation that files A set of permanent books of account exclusion provisions generally for Form 1120-F, U.S. Income Tax Return of a (including invoices) at that office, and transactions after 2004, subject to a Foreign Corporation. Furthermore, the The books and records required under transition rule. See the instructions for Form foreign corporation would not be eligible to section 6001 at a U.S. location to sufficiently 8873 for more information. reelect to be treated as a domestic establish the amount of gross income, corporation for 5 tax years beginning with The Tax Increase Prevention and deductions, credits, or other matters the first tax year for which the original Reconciliation Act of 2005 repealed the FSC required to be shown on its tax return. election is not in effect as a result of the binding contract exception. See Binding 5. It must have at least one director, at revocation or termination. contract exception below for details. all times during the tax year, who is not a Effect of election. A FSC that elects to be resident of the United States. treated as a domestic corporation ceases to 6. It must not be a member, at any time Rules for Existing FSCs be a FSC for any tax year for which the during the tax year, of a controlled group of In general, a FSC that was in existence on election applies (and for any subsequent tax which a DISC is a member. September 30, 2000, and at all times year). 7. It must have elected to be a FSC or thereafter, may continue to use the FSC small FSC, and the election must have been rules for any transaction in the ordinary FSC Election in effect for the tax year. course of business, that is (a) before No corporation may elect to be a FSC or a January 1, 2002, or (b) after December 31, small FSC (defined below) after Small FSC. Section 922(b) defines a small 2001, if such transaction is pursuant to a September 30, FSC as a corporation that: binding contract that meets the Elected small FSC status and has kept requirements described in Binding contract Termination of Inactive FSCs the election in effect for the tax year and exception below. If a FSC has no foreign trade income (see Is not a member, at any time during the Binding contract exception. The binding definition under Tax Treatment of a FSC on tax year, of a controlled group that includes contract exception has been repealed for tax page 3) for any 5 consecutive tax years a FSC (unless that other FSC is also a years beginning after May 17, For tax beginning after December 31, 2001, the small FSC). years beginning before May 18, 2006, the FSC will no longer be treated as a FSC for following rules apply: The transaction must any tax year beginning after that 5-year A small FSC is exempt from the foreign be pursuant to a binding contract between period. management and foreign economic process the FSC (or a person related to the FSC) requirements outlined on page 3. and a person other than a related person if Additional Information $5 million limit. Generally, any foreign that binding contract was in effect on For additional information regarding the trading gross receipts of a small FSC for the September 30, 2000, and has remained in rules discussed above, see Rev. Proc. tax year that exceed $5 million are not to be effect. A binding contract includes a , C.B considered in determining its exempt foreign -2-

3 trade income. The $5 million limit is reduced meetings of the shareholders of the FSC Instead of satisfying the 50% foreign if the small FSC has a short tax year. It may that take place during the tax year must take direct cost test, the FSC may incur foreign also be reduced if the small FSC is a place outside the United States. direct costs attributable to activities member of a controlled group that contains In addition, all such meetings must described in each of two of the section other small FSCs. See Regulations section comply with the local laws of the foreign 924(e) categories. The costs must equal or (b) for more information. country or U.S. possession in which the exceed 85% of the total direct costs incurred FSC was created or organized. The local by the FSC attributable to the activity Tax Treatment of a FSC laws determine whether a meeting must be described in each of the two categories. If A FSC is not taxed on its exempt foreign held, when and where it must be held (if it is no direct costs are incurred by the FSC in a trade income. Section 923 defines foreign held at all), who must be present, quorum particular category, that category is not trade income as the gross income of a FSC requirements, use of proxies, etc. taken into account for purposes of attributable to foreign trading gross receipts determining whether the FSC has met either Principal bank accounts. See Regulations (defined below). the 50% or 85% foreign direct cost test. section 1.924(c)-1(c) for information The percentage of foreign trade income regarding principal bank accounts. Direct costs are costs that: exempt from tax is figured differently for Are incident to and necessary for the income determined under the administrative Foreign Economic Process Rules performance of any activity described in pricing rules (for details, see the instructions A FSC (other than a small FSC) has foreign section 924(e); for Schedule P (Form 1120-FSC)) and trading gross receipts from any transaction Include the cost of materials consumed in income determined without regard to the only if certain economic processes for the the performance of the activity and the cost administrative pricing rules. These transaction take place outside the United of labor that can be identified or associated percentages are computed on Schedule E, States. Section 924(d) and Regulations directly with the performance of the activity page 4, Form 1120-FSC, and carried over to section 1.924(d)-1 set forth the rules for (but only to the extent of wages, salaries, lines 9a and 9b of Schedule B, page 3, determining whether a sufficient amount of fees for professional services, and other Form 1120-FSC, to figure taxable income or the economic processes of a transaction amounts paid for personal services actually (loss). takes place outside the United States. rendered, such as bonuses or compensation See section 923(a)(4) for a special rule Generally, a transaction will qualify if the paid for services on the basis of a for foreign trade income allocable to a FSC satisfies two requirements: percentage of profits); and cooperative. See section 923(a)(5) for a Participation outside the United States in Include the allowable depreciation special rule for military property. the sales portion of the transaction and deduction for equipment or facilities (or the Tax treaty benefits. A FSC may not claim Satisfaction of either the 50% or the 85% rental cost for its use) that can be any benefits under any income tax treaty foreign direct cost test. specifically identified or associated with the between the United States and any foreign activity, as well as the contract price of an The activities comprising these economic country. activity performed on behalf of the FSC by a processes may be performed by the FSC or contractor. by any other person acting under contract Foreign Trading Gross Receipts with the FSC. Total direct costs means all of the direct A FSC is treated as having foreign trading Participation outside the United States in costs of any transaction attributable to gross receipts (defined in section 924) only the sales portion of the transaction. activities described in any paragraph of if it has met certain foreign management Generally, the requirement of section section 924(e). For purposes of the 50% test and foreign economic process requirements. 924(d)(1)(A) is met for the gross receipts of of section 924(d)(1)(B), total direct costs are Foreign trading gross receipts do not a FSC derived from any transaction if the based on the direct costs of all activities include: FSC has participated outside the United described in all paragraphs of section Certain excluded receipts (defined in States in the following sales activities 924(e). For purposes of the 85% test of section 924(f)). relating to the transaction: (1) solicitation section 924(d)(2), however, the total direct Receipts attributable to property excluded (other than advertising), (2) negotiation, and costs are determined separately for each from export property under section (3) making a contract. paragraph of section 924(e). 927(a)(2). 1. Solicitation (other than advertising) is Foreign direct costs means the portion Investment income (defined in section any communication (including, but not of the total direct costs of any transaction 927(c)). limited to, telephone, telegraph, mail, or in attributable to activities performed outside Carrying charges (defined in section person) by the FSC, to a specific, targeted the United States. For purposes of the 50% 927(d)(1)). customer or potential customer. test, foreign direct costs are based on the Note. Computer software licensed for 2. Negotiation is any communication by direct costs of all activities described in all reproduction abroad is not excluded from the FSC to a customer or potential customer paragraphs of section 924(e). For purposes export property under section 927(a)(2). aimed at an agreement on one or more of of the 85% test, however, foreign direct Therefore, receipts attributable to the sale, the terms of a transaction, including, but not costs are determined separately for each lease, or rental of computer software and limited to, price, credit terms, quantity, or paragraph of section 924(e). services related and subsidiary to such time or manner of delivery. For more details, see Regulations transactions qualify as foreign trading gross 3. Making a contract refers to section 1.924(d)-1(d). receipts. performance by the FSC of any of the Check the applicable box(es) on line 10b, elements necessary to complete a sale, Additional Information, on page 2 of the such as making or accepting an offer. Foreign Management Rules form, to indicate how the FSC met the A FSC (other than a small FSC) is treated Grouping transactions. Generally, the foreign direct costs requirement. as having foreign trading gross receipts for sales activities described above are to be Grouping transactions. Generally, the the tax year only if the management of the applied on a transaction-by-transaction foreign direct cost tests under Regulations FSC during the year takes place outside the basis. However, a FSC may make an section 1.924(d)-1(d) are applied on a United States. These management activities annual election to apply any of the sales transaction-by-transaction basis. However, include: activities on the basis of a group. To make the FSC may make an annual election (on Meetings of the board of directors and the election, check the applicable box on line 10d, Additional Information, on page 2 meetings of the shareholders. line 10a, Additional Information, on page 2 of the form) to apply the foreign direct cost Disbursing cash, dividends, legal and of Form 1120-FSC. See Regulations section tests on a customer, contract, or product or accounting fees, salaries of officers, and 1.924(d)-1(c)(5) for details. product line grouping basis. Any grouping salaries or fees of directors from the Satisfaction of either the 50% or 85% used must be supported by adequate principal bank account (see below). foreign direct cost test. To qualify as documentation of performance of activities Maintaining the principal bank account at foreign trading gross receipts, the foreign and costs of activities relating to the all times during the tax year. direct costs incurred by the FSC attributable grouping used. See Regulations section Meetings of directors and meetings of to the transaction must equal or exceed 1.924(d)-1(e) for details. the shareholders. All meetings of the 50% of the total direct costs incurred by the Exception for foreign military property. board of directors of the FSC and all FSC attributable to the transaction. The economic process rules do not apply to -3-

4 any activities performed in connection with Generally, file Form 7004 by the regular due ends, see Pub. 947, Practice Before the IRS foreign military sales except those activities date of the Form 1120-FSC. and Power of Attorney. described in section 924(e). See Regulations section 1.924(d)-1(f) for details. Where To File Other Forms and Section 925(c) Rule File Form 1120-FSC with the: Statements That May Be Internal Revenue Service Center To use the administrative pricing rules to P.O. Box determine the FSC s (or small FSC s) profit Ogden, UT Required on a transaction or group of transactions, the FSC must perform (or contract with another person to perform) all of the economic process activities relating to the transaction or group of transactions. All of the direct and indirect expenses relating to the performance of those activities must be reflected on the books of the FSC and on Form 1120-FSC. Under Temporary Regulations section 1.925(a)-1T(b)(2)(ii), an election may be made to include on the FSC s books all expenses, other than cost of goods sold, that are necessary to figure combined taxable income for the transaction or group of transactions. The expenses must be identified on Schedule G on the applicable line. Who Must File File Form 1120-FSC if the corporation elected to be treated as a FSC or small FSC, and the election is still in effect. Note. A FSC that elects to be treated as a domestic corporation under section 943(e)(1) does not file Form 1120-FSC. Instead, it files Form 1120 (or Form 1120-A). 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. If a return is filed on behalf of a FSC by a receiver, trustee, or assignee, the fiduciary must sign the return, instead of the corporate officer. Returns and forms signed by a receiver or trustee in bankruptcy on behalf of a FSC must be accompanied by a copy of the order or instructions of the court authorizing signing of the return or form. If an employee of the FSC completes Form 1120-FSC, the paid preparer s space should remain blank. Anyone who prepares Form 1120-FSC but does not charge the FSC should not complete that section. Generally, anyone who is paid to prepare the return 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 in the space provided for the preparer s signature. Give a copy of the return to the taxpayer. Note. A preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software programs. Forms The FSC may have to file some of the forms listed below. See the form for more information. For a list of additional forms the FSC may need to file (most notably, forms pertaining to the reporting of various types of income, and any related withholding, to U.S. persons, foreign persons, and the IRS), see Pub. 542, Corporations. Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. This form may have to be filed by certain U.S. officers, directors, or shareholders of a FSC to report changes in ownership (see sections 6046 and the related regulations). If a Form 1120-FSC is filed, Form 5471 is not required to be filed to satisfy the requirements of section 6038 (see Temporary Regulations section T(b)(3)). However, certain U.S. shareholders may be required to file Form 5471 and the applicable schedules to report subpart F income. See the instructions for Form 5471 for more information. When To File Form 5472, Information Return of a 25% Generally, a corporation must file Form 1120-FSC by the 15th day of the 3rd month after the end of its tax year. A FSC that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Generally, a FSC that is engaged in a trade or business in the United States that had a reportable transaction with a foreign or domestic related party during If the due date falls on a Saturday, Paid Preparer the tax year must file Form Authorization Sunday, or legal holiday, the FSC may file Form 5713, International Boycott Report. on the next business day. FSCs that had operations in, or related to, Private delivery services. FSCs may use If the FSC wants to allow the IRS to discuss certain boycotting countries file certain private delivery services designated its 2006 tax return with the paid preparer Form by the IRS to meet the timely mailing as who signed it, check the Yes box in the signature area of the return. This Form 8275, Disclosure Statement, and timely filing/paying rule for tax returns and authorization applies only to the individual Form 8275-R, Regulation Disclosure payments. These private delivery services whose signature appears in the Paid Statement. Disclose items or positions taken include only the following: Preparer s Use Only section of the return. It on a tax return that are not otherwise DHL Express (DHL): DHL Same Day does not apply to the firm, if any, shown in adequately disclosed on a tax return or that Service, DHL Next Day 10:30 am, DHL Next that section. are contrary to Treasury regulations (to Day 12:00 pm, DHL Next Day 3:00 pm, and avoid parts of the accuracy-related penalty DHL 2nd Day Service. If the Yes box is checked, the FSC is or certain preparer penalties). Federal Express (FedEx): FedEx Priority authorizing the IRS to call the paid preparer Form 8300, Report of Cash Payments Overnight, FedEx Standard Overnight, to answer any questions that may arise Over $10,000 Received in a Trade or FedEx 2Day, FedEx International Priority, during the processing of its return. The FSC Business. Use this form to report the receipt and FedEx International First. is also authorizing the paid preparer to: of more than $10,000 in cash or foreign United Parcel Service (UPS): UPS Next Give the IRS any information that is currency in one transaction or a series of Day Air, UPS Next Day Air Saver, UPS 2nd missing from the return, related transactions. Day Air, UPS 2nd Day Air A.M., UPS Call the IRS for information about the Form 8886, Reportable Transaction Worldwide Express Plus, and UPS processing of the return or the status of any Disclosure Statement. Use this form to Worldwide Express. related refund or payment(s), and disclose information for each reportable Respond to certain IRS notices about The private delivery service can tell you transaction in which the FSC participated. math errors, offsets, and return preparation. how to get written proof of the mailing date. Form 8886 must be filed for each tax year The FSC is not authorizing the paid that the Federal Income tax liability of the Private delivery services cannot preparer to receive any refund check, bind FSC is affected by its participation in the! deliver items to P.O. boxes. You the FSC to anything (including any transaction. The FSC may have to pay a CAUTION must use the U.S. Postal Service to additional tax liability), or otherwise penalty if it is required to file Form 8886 and mail any item to an IRS P.O. box address. represent the FSC before the IRS. does not do so. The following are reportable Extension of time to file. File Form 7004, The authorization will automatically end transactions: Application for Automatic 6-Month Extension no later than the due date (excluding 1. Any listed transaction which is a of Time To File Certain Business Income extensions) for filing the FSC s 2007 tax transaction that is the same as or Tax, Information, and Other Returns, to return. If the FSC wants to expand the paid substantially similar to tax avoidance request a 6-month extension of time to file. preparer s authorization or revoke it before it transactions identified by the IRS. -4-

5 2. Any transaction offered under A FSC (other than a qualified personal property for as long as they are needed to conditions of confidentiality for which the service corporation) must use the accrual figure the basis of the original or FSC paid an advisor a fee of at least method of accounting if its average annual replacement property. $250,000. gross receipts exceed $5 million. 3. Certain transactions for which the Unless it is a qualifying taxpayer or a The FSC should keep copies of all filed returns. They help in preparing future and amended returns. FSC has contractual protection against disallowance of the tax benefits. qualifying small business taxpayer, a FSC must use the accrual method for sales and 4. Certain transactions resulting in a purchases of inventory items. See Schedule loss of at least $10 million in any single year A, Cost of Goods Sold Related to Foreign Payment of Tax Due The FSC must pay the tax due in full no Change in accounting method. To later than the 15th day of the 3rd month credit of more than $250,000, if the FSC change its method of accounting used to after the end of the tax year. The method for held the asset generating the credit for 45 report taxable income (for income as a payment of the tax due depends upon days or less. whole or for the treatment of any material whether the FSC has an office or place of or $20 million in any combination of years. 5. Certain transactions resulting in a tax Trading Gross Receipts, on page 7. Penalties. The FSC may have to pay a item), the FSC must file Form 3115, business in the United States. penalty if it is required to disclose a Application for Change in Accounting 1. FSCs that do not maintain an office or reportable transaction under section 6011 Method. For more information, see Form place of business in the United States must and fails to properly complete and file Form 3115 and Pub. 538, Accounting Periods and pay the tax due directly to the IRS (that is, The penalty is $50,000 ($200,000 if Methods. do not use either of the depository methods the reportable transaction is a listed Section 481(a) adjustment. The FSC of tax payment described below). The tax transaction) for each failure to file Form may have to make an adjustment under may be paid by check or money order, 8886 with its corporate return or for failure to section 481(a) to prevent amounts of payable to the United States Treasury. To provide a copy of Form 8886 to the Office of income or expense from being duplicated or help ensure proper crediting, write the Tax Shelter Analysis (OTSA). Other omitted. The section 481(a) adjustment FSC s employer identification number (EIN), penalties, such as an accuracy-related period is generally 1 year for a net negative Form 1120-FSC, and the tax period to penalty under section 6662A, may also adjustment and 4 years for a net positive which the payment applies on the check or apply. See the Instructions for Form 8886 adjustment. However, a FSC may elect to money order. Enclose the payment when for details. use a 1-year adjustment period if the net Form 1120-FSC is filed. section 481(a) adjustment for the change is 2. FSCs that maintain an office or place less than $25,000. The FSC must complete of business in the United States must pay Assembling the Return the appropriate lines of Form 3115 to make the tax due using one of the depository To ensure that the FSC s tax return is the election. methods of tax payment described below. correctly processed, attach all schedules and other forms after page 6, Form 1120-FSC, and in the following order: Accounting Period Depository Methods of Tax A FSC must figure its taxable income on the Payment 1. Schedule O (Form 1120). 2. Form basis of a tax year. A tax year is the annual 3. Form accounting period a FSC uses to keep its Electronic Deposit Requirement 4. Form 851. records and report its income and expenses. Generally, FSCs may use a calendar year or The FSC must make electronic deposits of 5. Additional schedules in alphabetical a fiscal year. Personal service corporations, all depository taxes (such as employment order. however, must generally use a calendar tax, excise tax, and corporate income tax) 6. Additional forms in numerical order. year. using the Electronic Federal Tax Payment System (EFTPS) in 2007 if: Complete every applicable entry space Note. The tax year of a FSC must be the The total deposits of such taxes in 2005 on Form 1120-FSC. Do not enter See same as the tax year of the principal were more than $200,000 or attached instead of completing the entry shareholder which, at the beginning of the The FSC was required to use EFTPS spaces. If more space is needed on the FSC tax year, has the highest percentage of in forms or schedules, attach separate sheets voting power. If two or more shareholders using the same size and format as the have the highest percentage of voting If the FSC is required to use EFTPS and printed forms. If there are supporting power, the FSC must have a tax year that fails to do so, it may be subject to a 10% statements and attachments, arrange them conforms to the tax year of any such penalty. If the FSC is not required to use in the same order as the schedules or forms shareholder. See section 441(h). EFTPS, it may participate voluntarily. To they support and attach them last. Show the enroll in or get more information about totals on the printed forms. Enter the FSC s Rounding Off To EFTPS, call To enroll name and EIN on each supporting online, visit statement or attachment. Whole Dollars Depositing on time. For EFTPS deposits The FSC may round off cents to whole to be made timely, the FSC must initiate the dollars on its return and schedules. If the transaction at least 1 business day before Accounting Methods FSC does round to whole dollars, it must the date the deposit is due. Figure taxable income using the method of round all amounts. To round, drop amounts accounting regularly used in keeping the under 50 cents and increase amounts from Deposits With Form 8109 FSC s books and records. In all cases, the 50 to 99 cents to the next dollar (for method used must clearly show taxable If the FSC does not use EFTPS, deposit example, $1.39 becomes $1 and $2.50 income. Permissible methods include cash, FSC income tax payments (and estimated becomes $3). accrual, or any other method authorized by tax payments) with Form 8109, Federal Tax the Internal Revenue Code. If two or more amounts must be added to Deposit Coupon. If you do not have a figure the amount to enter on a line, include pre-printed Form 8109, use Form 8109-B to A member of a controlled group may not cents when adding the amounts and round make deposits. You can get this form by use an accounting method that would distort off only the total. calling or visiting an IRS any group member s income, including its taxpayer assistance center. Have your EIN own. For example, a FSC acts as a Recordkeeping ready when you call or visit. commission agent for property sales by a related corporation that uses the accrual Keep the FSC s records for as long as they Do not send deposits directly to an IRS method and pays the FSC its commission may be needed for the administration of any office; otherwise, the FSC may have to pay more than 2 months after the sale. In this provision of the Internal Revenue Code. a penalty. Mail or deliver the completed case, the FSC should not use the cash Usually, records that support an item of Form 8109 with the payment to an method because that method would income, deduction, or credit on the return authorized depositary (a commercial bank or materially distort its income. must be kept for 3 years from the date the other financial institution authorized to return is due or filed, whichever is later. accept Federal tax deposits). Make checks Generally, the following rules apply: Keep records that verify the FSC s basis in or money orders payable to the depositary. -5-

6 If the FSC prefers, it may mail the Late filing of return. A FSC that does not Name. Print or type the FSC s true name coupon and payment to: Financial Agent, file its tax return by the due date, including (as set forth in the charter or other legal Federal Tax Deposit Processing, P.O. Box extensions, may be penalized 5% of the document creating it) , St. Louis, MO Make the unpaid tax for each month or part of a month Address. Enter the U.S. address where the check or money order payable to the return is late, up to a maximum of 25% FSC maintains the records required under Financial Agent. of the unpaid tax. The minimum penalty for section Include the suite, room, or a return that is over 60 days late is the To help ensure proper crediting, write the other unit number after the street address. If smaller of the tax due or $100. The penalty FSC s EIN, the tax period to which the the post office does not deliver mail to the will not be imposed if the FSC can show that deposit applies, and Form 1120-FSC on street address and the FSC has a P.O. box, the failure to file on time was due to the check or money order. Darken the show the box number instead. reasonable cause. FSCs that file late should 1120 box under Type of Tax and the attach a statement explaining the If the FSC receives its mail in care of a appropriate Quarter box under Tax reasonable cause. third party (such as an accountant or an Period on the coupon. Records of these attorney), enter on the street address line deposits will be sent to the IRS. Late payment of tax. A FSC that does not C/O followed by the third party s name and pay the tax when due generally may be For more information on deposits, see street address or P.O. box. penalized 1 /2 of 1% of the unpaid tax for the instructions in the coupon booklet (Form each month or part of a month the tax is not Item A. Foreign country or U.S. 8109) and Pub. 583, Starting a Business paid, up to a maximum of 25% of the unpaid possession of incorporation. See and Keeping Records. tax. The penalty will not be imposed if the Definition of a Foreign Sales Corporation FSC can show that the failure to pay on time (FSC) on page 2. If the FSC maintains an office or was due to reasonable cause. Item E. Total assets. Enter the FSC s total! place of business in the United Trust fund recovery penalty. This penalty assets (as determined by the accounting CAUTION States and it owes tax when it files may apply if certain income, social security, method regularly used in keeping the FSC s Form 1120-FSC, do not include the payment and Medicare taxes that must be collected books and records) at the end of the tax with the tax return. Instead, mail or deliver or withheld are not collected or withheld, or year from page 6, Schedule L, column (d), the payment with Form 8109 to an these taxes are not paid. These taxes are line 15. If there are no assets at the end of authorized depositary, or use EFTPS, if generally reported on Form 941, Employer s the tax year, enter -0-. applicable. Quarterly Federal Tax Return, or Form 945, Item F. Final return, name change, Annual Return of Withheld Federal Income address change, or amended return. Estimated Tax Payments Tax. If this is the FSC s final return and it will Generally, the following rules apply to the no longer exist, check the Final return box. The trust fund recovery penalty may be FSC s payments of estimated tax: If the FSC changed its name since it last imposed on all persons who are determined filed a return, check the box for Name The FSC must make installment by the IRS to have been responsible for change. Generally, a FSC also must have payments of estimated tax if it expects its collecting, accounting for, and paying over amended its articles of incorporation and total tax for the year (less applicable credits) these taxes, and who acted willfully in not filed the amendment with the jurisdiction in to be $500 or more. doing so. The penalty is equal to the unpaid which it was incorporated. The installments are due by the 15th day trust fund tax. See Pub. 15 (Circular E), If the FSC has changed its address since of the 4th, 6th, 9th, and 12th months of the Employer s Tax Guide, for details, including it last filed a return (including a change to an tax year. If any date falls on a Saturday, the definition of responsible persons. in care of address), check the box for Sunday, or legal holiday, the installment is Other penalties. Other penalties may be Address change. due on the next regular business day. imposed for negligence, substantial Note. If a change of address occurs after Use Form 1120-W, Estimated Tax for understatement of tax, and fraud. See the return is filed, use Form 8822, Change Corporations, as a worksheet to compute sections 6662, 6662A, and of Address, to notify the IRS of the new estimated tax. A FSC may also be subject to a penalty address. If the FSC maintains an office or place of business in the United States and it does (under section 6686) of: If the FSC is amending its return, check not use EFTPS, use the deposit coupons $100 for each failure to supply the box for Amended return. (Forms 8109) to make deposits of estimated information, up to $25,000 during the tax. calendar year. FSC Information If the FSC does not maintain an office or $1,000 for not filing a return. Line 1. Principal shareholder. Complete place of business in the United States, it These penalties will not apply if the FSC lines 1a through 1h for the shareholder must pay the estimated tax due directly to can show that the failure to furnish the (individual, corporation, partnership, trust, or the IRS required information was due to reasonable estate) that was the principal shareholder at If the FSC overpaid estimated tax, it may cause. the beginning of the FSC s tax year. See the be able to get a quick refund by filing Form Note on page 5 under Accounting Period. 4466, Corporation Application for Quick Foreign address. Enter the information Refund of Overpayment of Estimated Tax. in the following order: city, province or state, For more information on estimated tax Specific Instructions and country. Follow the country s practice payments, including penalties that apply if for entering the postal code. Do not the FSC fails to make required payments, Period covered. File the 2006 return for abbreviate the country name. see Line 3, Estimated tax penalty, calendar year 2006 and fiscal years that Line 2. Parent-subsidiary controlled on page 7. begin in 2006 and end in For a fiscal group. If the FSC is a subsidiary in a year return, fill in the tax year space at the parent-subsidiary controlled group and the Interest and Penalties top of the form. principal shareholder is not the common Note. The 2006 Form 1120-FSC may also parent of the group, complete lines 2a Interest. Interest is charged on taxes paid be used if: through 2g for the common parent. Enter the late even if an extension of time to file is The FSC has a tax year of less than 12 consolidated total assets on line 2d for a granted. Interest is also charged on months that begins and ends in 2007 and group that files a consolidated return; penalties imposed for failure to file, The 2007 Form 1120-FSC is not available otherwise, enter only the common parent s negligence, fraud, substantial valuation at the time the FSC is required to file its total assets. misstatements, gross valuation misstatements, substantial understatements return. Note. Check the Yes box on line 2 if the of tax, and reportable transaction The FSC must show its 2007 tax year on FSC is a subsidiary in a parent-subsidiary understatements from the due date the 2006 Form 1120-FSC and take into controlled group. This applies even if the (including extensions) to the date of account any tax law changes that are FSC is a subsidiary member of one group payment. The interest charge is figured at a effective for tax years beginning after and the parent corporation of another. rate determined under section December 31,

7 The term parent-subsidiary controlled See section 6655 for details and are deductible in the year the merchandise group means one or more chains of exceptions, including special rules for large is sold (but not before the year the FSC paid corporations connected through stock corporations. for the merchandise, if it is also using the ownership (sections 927(d)(4) and Use Form 2220, Underpayment of cash method). For additional guidance on 1563(a)(1)). Both of the following Estimated Tax by Corporations, to see if the this method of accounting for inventoriable requirements must be met: FSC owes the penalty and to figure the items, see Pub. 538, and the Instructions for 1. More than 50% of the total combined amount of the penalty. Generally, the FSC Form voting power of all classes of stock entitled does not have to file this form because the Enter amounts paid for merchandise to vote or more than 50% of the total value IRS can figure the amount of any penalty during the tax year on line 2. The amount of all classes of stock of each corporation in and bill the FSC for it. However, even if the the FSC may deduct for the tax year is the group (except the parent) must be FSC does not owe the penalty, complete figured on line 8. owned by one or more of the other and attach Form 2220 if: corporations in the group. The annualized income or adjusted All FSCs not using the cash method of 2. The common parent must own more seasonal installment method is used or accounting should see Section 263A than 50% of the total combined voting power The FSC is a large corporation computing uniform capitalization rules in the of all classes of stock entitled to vote or its first required installment based on the instructions for Schedule G on page 10. See more than 50% of the total value of all prior year s tax. (See the Form 2220 those instructions before completing classes of stock of at least one of the other instructions for the definition of a large Schedule A. corporations in the group. corporation.) If the FSC uses intercompany pricing If Form 2220 is attached, check the box rules (for purchases from a related supplier), Stock owned directly by other members on line 3 and enter the amount of any use the transfer price figured in Part II of of the group is not counted when computing penalty on this line. Schedule P (Form 1120-FSC). the voting power or value. Line 1. Inventory at beginning of year. If See sections 927(d)(4) and 1563(d)(1) Schedule A the FSC is changing its method of for the definition of stock for purposes of accounting for the current tax year, it must determining stock ownership above. Cost of Goods Sold Related To refigure last year s closing inventory using Foreign Trading Gross Receipts its new method of accounting and enter the Complete Schedule A only for the cost of result on line 1. If there is a difference Tax and Payments goods sold deduction related to foreign between last year s closing inventory and Line 2h. Credit for federal telephone trading gross receipts reported on lines 1 the refigured amount, attach an explanation excise tax paid. If the FSC was billed after through 5 of Schedule B. and take it into account when figuring the February 28, 2003, and before August 1, Complete column (a) to show the cost of FSC s section 481(a) adjustment (explained 2006, for the federal telephone excise tax on goods sold for inventory acquired in on page 5). long distance or bundled service, the FSC transactions using the administrative pricing Line 4. Additional section 263A costs. An may be able to request a credit for the tax rules. Complete column (b) to show the cost entry is required on this line only for FSCs paid. The FSC had bundled service if its of goods sold for inventory acquired in that have elected a simplified method of local and long distance service was transactions that did not use the accounting. provided under a plan that does not administrative pricing rules. For details on separately state the charge for local service. the administrative pricing rules, see the For FSCs that have elected the simplified The FSC may not request the credit if it has Instructions for Schedule P (Form production method, additional section 263A already received a credit or refund from its 1120-FSC). costs are generally those costs, other than service provider. If the FSC requests the interest, that were not capitalized under the credit, it may not ask its service provider for If the FSC acts as another person s FSC s method of accounting immediately a credit or refund and must withdraw any commission agent on a sale, do not enter prior to the effective date of section 263A request previously submitted to its provider. any amount on Schedule A for the sale. but are now required to be capitalized under Small FSCs will have to make two section 263A. For details, see Regulations The FSC may request the credit by separate computations for cost of goods section 1.263A-2(b). attaching Form 8913, Credit for Federal sold if their foreign trading gross receipts Telephone Excise Tax Paid, showing the For FSCs that have elected the simplified exceed the limitation amount on line 6e of actual amount the FSC paid. The FSC also resale method, additional section 263A Schedule B. In this case, a deduction for may be able to request the credit based on costs are generally those costs incurred with cost of goods sold will be figured separately an estimate of the amount paid. See Form respect to the following categories: for the income on line 6h of Schedule B, and 8913 for details. In either case, the FSC Off-site storage or warehousing. separately for the income on line 7 of must keep records to substantiate the Purchasing. Schedule F. amount of the credit requested. Handling, such as processing, Generally, inventories are required at the assembling, repackaging, and transporting. Line 2i. Backup withholding. If the FSC beginning and end of each tax year if the General and administrative costs (mixed had income tax withheld from any payments purchase or sale of merchandise is an service costs). it received due to backup withholding, income-producing factor. See Regulations include the amount withheld in the total for section For details, see Regulations section line 2i. Show the amount withheld in the 1.263A-3(d). However, if the FSC is a qualifying blank space in the right-hand column taxpayer or a qualifying small business Enter on line 4 the balance of section between lines 1 and 2i, and write backup taxpayer, it may adopt or change its 263A costs paid or incurred during the tax withholding. accounting method to account for year not includible on lines 2, 3, and 5. Note. Do not include backup withholding inventoriable items in the same manner as Line 5. Other costs. Enter on line 5 any amounts on line 2g. Include on line 2g only materials and supplies that are not costs paid or incurred during the tax year amounts withheld under Chapter 3 of the incidental (unless its business is a tax not entered on lines 2 through 4. Code. shelter (as defined in section 448(d)(3)). A qualifying taxpayer is a taxpayer that Line 7. Inventory at end of year. See has average annual gross receipts of $1 Regulations sections 1.263A-1 through Line 3. Estimated tax penalty. A FSC that million or less for the 3 prior years A-3 for details on figuring the amount does not make estimated tax payments of additional section 263A costs to be when due may be subject to an A qualifying small business taxpayer is a included in ending inventory. If the FSC underpayment penalty for the period of taxpayer (a) that has average annual gross accounts for inventoriable items in the same underpayment. Generally, a FSC is subject receipts of $10 million or less for the 3 prior manner as materials and supplies that are to the penalty if its tax liability is $500 or tax years and (b) whose principal business not incidental, enter on line 7 the portion of more and it did not timely pay the smaller of: activity is not an ineligible activity. its merchandise purchased for resale that is Its tax liability for 2006 or Under this accounting method, inventory included on line 6 and was not sold during Its prior year s tax. costs for merchandise purchased for resale the year. -7-

8 Lines 9a through 9f. Inventory valuation regulated investment company. Also include Report in column (b) all foreign trade methods. Inventories may be valued at: this amount on Schedule M-1, line 7a. income from all transactions in which the Cost; administrative pricing rules were not used. Line 5. If the FSC owned at least a 10% Cost or market value (whichever is lower) Attach a schedule that shows the interest, directly or indirectly, in any foreign or computation of the taxable and nontaxable partnership, attach a statement listing the Any other method approved by the IRS income included on line 15, column (b). following information for each foreign that conforms to the requirements of the Include only the taxable amount on line 16. partnership. For this purpose, a foreign applicable regulations cited below. partnership includes an entity treated as a Nonaccrual experience method. Accrual However, if the FSC is using the cash foreign partnership under Regulations method FSCs are not required to accrue method of accounting, it is required to use section or certain amounts to be received from the cost. 1. Name and EIN (if any) of the foreign performance of certain services that, on the FSCs that account for inventoriable items partnership; basis of their experience, will not be in the same manner as materials and 2. Identify which, if any, of the following collected, if the FSC s average annual gross supplies that are not incidental may forms the foreign partnership filed for its tax receipts for the 3 prior tax years does not currently deduct expenditures for direct year ending with or within the FSC s tax exceed $5 million. labor and all indirect costs that would year: Form 1042, 1065 or 1065-B, or 8804; This provision does not apply to any otherwise be included in inventory costs. 3. Name of the tax matters partner (if amount if interest is required to be paid on The average cost (rolling average) any) and the amount or if there is any penalty for method of valuing inventories generally 4. Beginning and ending dates of the failure to timely pay the amount. For more does not conform to the requirements of the foreign partnership s tax year. information, see section 448(d)(5) and regulations. See Rev. Rul , Regulations section C.B Line 6. If the FSC has a net operating loss (NOL) for its 2006 tax year, it may elect to Corporations that qualify to use the FSCs that use erroneous valuation waive the entire carryback period for the nonaccrual experience method should methods must change to a method NOL and instead carry the NOL forward to attach a schedule showing total gross permitted for Federal income tax purposes. future tax years. To do so, check the box on receipts, the amount not accrued as a result To make this change, use Form line 6 and file the tax return by its due date, of the application of section 448(d)(5), and On line 9a, check the method(s) used for including extensions (do not attach the the net amount accrued. Enter the net valuing inventories. Under lower of cost or statement described in Temporary amount on the applicable line of market, the term market (for normal goods) Regulations section T). Once Schedule B. means the current bid price prevailing on the made, the election is irrevocable. See Pub. Lines 1 through 5. Enter the foreign inventory valuation date for the particular 542 and Form 1139, Corporation Application trading gross receipts requested on lines 1 merchandise in the volume usually for Tentative Refund, for more details. through 5. See section 924 and Foreign purchased by the taxpayer. If section 263A Line 7. Enter the amount of the NOL Trading Gross Receipts on page 3 of these applies to the taxpayer, the basic elements carryover to the tax year from prior years, instructions for receipts that are excluded of cost must reflect the current bid price of even if some of the loss is used to offset and other details. Report commission all direct costs and all indirect costs properly income on this return. The amount to enter income on line 1 or line 2 based on the sale, allocable to goods on hand at the inventory is the total of all NOLs generated in prior lease, or rental of property on which that date. years but not used to offset income (either commission arose. Inventory may be valued below cost as a carryback or carryover) to a tax year Line 5. If the 50% gross receipts test of when the merchandise is unsalable at prior to Do not reduce the amount by section 924(a)(5) is not met, report the normal prices or unusable in the normal way any NOL deduction reported on line 19a, FSC s gross receipts that would have because the goods are subnormal due to Part II of Schedule B. otherwise qualified under that section on line damage, imperfections, shop wear, etc., 16, Schedule F, instead of line 5, within the meaning of Regulations section Lines 8c and 9b(2). See Definition of a Schedule B (c). The goods may be valued at the Foreign Sales Corporation (FSC) on page 2 current bona fide selling price, minus direct for definitions of qualifying foreign country Lines 6b through 6h. See section cost of disposition (but not less than scrap and U.S. possession. 924(b)(2)(B) for the rules regarding the value) if such a price can be established. limitation on the amount of foreign trading Line 9. All FSCs (except small FSCs) must gross receipts that a small FSC may take If this is the first year the Last-in, answer these questions. For more into account in determining its exempt First-out (LIFO) inventory method was either information, see Foreign Management Rules foreign trade income. adopted or extended to inventory goods not on page 3. previously valued under the LIFO method Line 6d. Temporary Regulations section provided in section 472, attach Form 970, Line 10. All FSCs (except small FSCs) T(b)(5) indicates that, in the case of Application To Use LIFO Inventory Method, must answer these questions. On line 10b, a small FSC having a short tax year, the or a statement with the information required indicate how the FSC met the foreign direct dollar limitation reported on line 6b or 6c is by Form 970. Also check the LIFO box on costs requirement of section 924(d) for all to be prorated on a daily basis. A small FSC line 9c. On line 9d, enter the amount or the transactions that generated foreign trading having a short tax year must divide the percent of total closing inventories covered gross receipts reported on lines 1 through 5 number of days in its short tax year by the under section 472. Estimates are of Schedule B. Also, complete line 10a number of days that would have made up a acceptable. and/or line 10d to make an election to use full tax year and enter the resulting fraction either of the annual grouping election(s) If the FSC changed or extended its on line 6d as a decimal less than indicated. See Foreign Economic Process inventory method to LIFO and had to write Rules on page 3 for details. Example. For its 2006 calendar year tax up the opening inventory to cost in the year year, a small FSC has a short tax year of 73 of election, report the effect of the write-up days. The FSC enters 0.20 (73/365) on as other income (as appropriate on Schedule B line 6d. Schedule F, line 16), proportionately over a Taxable Income or (Loss) Line 6f. If commission income is reported in 3-year period that begins with the year of Use Schedule B to compute taxable income the total for line 6a of Schedule B, total the LIFO election (section 472(d)). from all sources. receipts for purposes of line 6f are figured For more information on inventory as follows: valuation methods, see Pub Part I 1. Enter total of columns (a) and (b), Use Part I to compute net income Additional Information line 6a, Schedule B attributable to nonexempt foreign trade Line 2. Show any tax-exempt interest income. Income and expenses on lines 1 2. Enter total commission income received or accrued. Include any through 15 are reported in column (a) if the reported on line 1 and line 2, Schedule B exempt-interest dividends received as a administrative pricing rules were used in the shareholder in a mutual fund or other transaction that produced the income. 3. Subtract line 2 from line

9 administrative pricing rules. See section 4. With respect to the commission Instructions for Dividends income reported on line 2 above, 923(a)(2). and Dividends-Received enter total gross receipts on the Use lines 3a through 3d to figure the sale, lease, or rental of property on exemption percentage for foreign trade Deduction Worksheet which the commission income income that was determined by using the For purposes of the 20% ownership test on arose (section 927(b)(2)) administrative pricing rules (see section lines 1 through 7, the percentage of stock 5. Add lines 3 and 4. Enter here and 923(a)(3)). If a qualified cooperative is a owned by the FSC is based on voting power on line 6f, Schedule B shareholder of the FSC, see section and value of the stock. Preferred stock 923(a)(4). described in section 1504(a)(4) is not taken Line 6h. When making the line 6h into account. allocation, allocate only the commission Schedule F Line 1, Column (a) income from the gross receipts on line 4 above. If the small FSC s foreign trading Net Income From Nonexempt gross receipts for the tax year (line 6f, Foreign Trade Income and Schedule B) exceed its allowable limitation 1984 see section 246A) that: (line 6e, Schedule B), the small FSC may Taxable Nonforeign Trade select the gross receipts to which the Income Enter dividends (except those received on debt-financed stock acquired after July 18, Are received from less-than-20%-owned domestic corporations subject to income tax limitation is allocated. In such a case, and allocate the amount on line 6g between Qualify for the 70% deduction under Part I columns (a) and (b) on line 6h based on section 243(a)(1). Enter net income from nonexempt foreign whether the administrative pricing rules trade income and related expenses in Part I. Also include on line 1 dividends (except were used for the gross receipts selected. those received on debt-financed stock See Regulations section (b), Q&A-4. Line 2. Enter FSC income that resulted acquired after July 18, 1984) from a from the FSC s cooperation with an regulated investment company (RIC). The Part II international boycott. See section 927(e)(2) amount of dividends eligible for the and Form 5713 and related schedules and dividends-received deduction under section Line 19a. Net operating loss deduction. instructions. 243 is limited by section 854(b). The FSC A FSC may use the NOL incurred in one tax Line 3. Enter the amount, if any, of illegal should receive a notice from the RIC year to reduce its taxable income in another payments, bribes, or kickbacks that the FSC specifying the amount of dividends that tax year. Enter on line 19a the total NOL paid, directly or indirectly, to government qualify for the deduction. carryovers from other tax years, but do not enter more than the FSC s taxable income officials, employees, or agents. See section Report so-called dividends or earnings (after the dividends-received deduction). 927(e)(2). received from mutual savings banks, etc., as Attach a schedule showing the computation Line 5. See the instructions for Schedule A interest. Do not treat them as dividends. of the NOL deduction. Also complete line 7 before completing this line. Line 2, Column (a) in Additional Information on page 2 of the form. Part II Enter dividends (except those received on Enter the taxable portion of gross income of debt-financed stock acquired after July 18, For details on the NOL deduction, see the FSC that was not derived from foreign 1984) that are received from Pub. 542, section 172, and Form trading gross receipts. This type of income 20%-or-more-owned domestic corporations Line 19b. Dividends-received deduction. includes: subject to income tax and that are subject to A FSC may be entitled to a deduction for Small FSCs only. Amounts specifically the 80% deduction under section 243(c). dividends it receives from other excluded from foreign trade income because Line 3, Column (a) corporations. Complete the worksheet on of the small FSC limitation (the amount by page 10 using the instructions that begin which line 6f of Schedule B exceeds line 6e Enter dividends that are: below. Attach the completed worksheet to of Schedule B). (Enter the excess, if any, on Received on debt-financed stock acquired Form 1120-FSC. line 7 of Schedule F.) after July 18, 1984, from domestic and Investment type income. (Enter on lines 8 foreign corporations subject to income tax Line 20. Taxable income or (loss). If line through 12 of Schedule F.) that would otherwise be subject to the 20 is zero or less, the FSC may have an Income from property that is subsidized, dividends-received deduction under section NOL that may be carried back or forward as deemed in short supply, or destined for use 243(a)(1), 243(c), or 245(a). Generally, a deduction to other tax years. Generally, a in the United States. (Enter on lines 13 and debt-financed stock is stock that the FSC FSC first carries back an NOL 2 tax years. 14 of Schedule F.) acquired by incurring a debt (for example, it However, the FSC may elect to waive the Amounts from transactions that did not borrowed money to buy the stock). carryback period and instead carry the NOL meet the foreign economic process Received from a RIC on debt-financed forward to future tax years. To make the requirements. (Enter on line 15 of stock. The amount of dividends eligible for election, see the instructions for Additional Schedule F.) the dividends-received deduction is limited Information, line 6 on page 8. Other nonforeign trade income. (Enter on by section 854(b). The FSC should receive See Form 1139 for details, including line 16 of Schedule F.) a notice from the RIC specifying the amount other elections that may be available, which of dividends that qualify for the deduction. must be made no later than 6 months after For more details, see sections 924(f) and 927(a)(2) and (3). Line 3, Columns (b) and (c) the due date (excluding extensions) of the FSC s tax return. Line 9. Complete the worksheet on page 10 Dividends received on debt-financed stock to figure the total dividends to report on acquired after July 18, 1984, are not entitled line 9. Attach the completed worksheet to to the full 70% or 80% dividends-received Schedule E Form 1120-FSC. deduction. The 70% or 80% deduction is reduced by a percentage that is related to Exemption Percentages Used in Line 18. Enter the deductions allocated or the amount of debt incurred to acquire the Figuring Exempt Foreign Trade apportioned to line 17 income. Attach to stock. See section 246A. Also, see section Form 1120-FSC a schedule listing each type Income 245(a) before making this computation for of deduction. Show deductions related to For purposes of the Note at the top of an additional limitation that applies to cost of goods sold separately. See the Schedule E, a C corporation is a corporation dividends received from foreign instructions for Schedule A on page 7 before other than an S corporation. Shareholders, corporations. Attach a schedule to completing this line. other than C corporations, are individuals, Form 1120-FSC showing how the amount Passive activity limitations. Section 469 partnerships, S corporations, trusts, and on line 3, column (c), was figured. generally limits the deduction of passive estates. activity losses for closely held FSCs and Line 4, Column (a) Use lines 2a through 2d to figure the FSCs that are personal service Enter dividends received on the preferred exemption percentage for foreign trade corporations. See section 469 and the stock of a less-than-20%-owned public utility income determined by not using the Instructions for Form 8810 for details. that is subject to income tax and is allowed -9-

10 the deduction provided in section 247 for ex-dividend date. When counting the 4. Enter the smaller of line 2 or 3. If dividends paid. line 3 is greater than line 2, stop number of days the FSC held the stock, you here; enter the amount from line 4 may not count certain days during which the Line 5, Column (a) on line 8, column (c), and do not FSC s risk of loss was diminished. See Enter dividends received on preferred stock complete lines 5-10 below section 246(c)(4) and Regulations section of a 20%-or-more-owned public utility that is for more details. subject to income tax and is allowed the 5. Enter the total amount of dividends b. Dividends attributable to periods deduction provided in section 247 for from 20%-or-more-owned totaling more than 366 days that the corporations that are included on dividends paid. lines 2, 3, 5, and 7, column (a).. 5. corporation received on any share of preferred stock held for less than 91 days Line 6, Column (a) 6. Subtract line 5 from line during the 181-day period that began 90 Enter the U.S.-source portion of dividends 7. Multiply line 6 by 70% days before the ex-dividend date. When that: counting the number of days the FSC held Are received from less-than-20%-owned 8. Subtract line 3 above from line 8, the stock, you may not count certain days foreign corporations and column (c) during which the FSC s risk of loss was Qualify for the 70% deduction under 9. Enter the smaller of line 7 or diminished. See section 246(c)(4) and section 245(a). To qualify for the 70% line Regulations section for more deduction, the FSC must own at least 10% 10.Dividends-received deduction details. Preferred dividends attributable to of the stock of the foreign corporation by after limitation (sec. 246(b)). Add periods totaling less than 367 days are vote and value. lines 4 and 9. Enter the result here subject to the 46-day holding period rule and on line 8, column (c) above. Line 7, Column (a) c. Dividends on any share of stock to Enter the U.S.-source portion of dividends the extent the FSC is under an obligation that are received from 20%-or-more-owned Line 10, Column (a) (including a short sale) to make related foreign corporations and that qualify for the If the FSC claims the foreign tax credit, payments with respect to positions in 80% deduction under section 245(a). enter the tax that is deemed paid under substantially similar or related property. sections 902 and 960. See sections 78 and Line 8, Column (c) 5. Any other taxable dividend income 906(b)(4). not properly reported elsewhere on the Limitation on dividends-received worksheet. Line 11, Column (a) deduction. Generally, line 8, column (c), If patronage dividends or per-unit retain may not exceed the amount on line 10 of the Include the following: allocations are included on line 11, identify worksheet below. However, in a year in 1. Dividends (other than capital gain the total of these amounts in a schedule which an NOL occurs, this limitation does distributions reported on Schedule D (Form attached to Form 1120-FSC. not apply even if the loss is created by the 1120) and exempt-interest dividends) that dividends-received deduction. See sections are received from RICs and that are not 172(d) and 246(b). subject to the 70% deduction. Schedule G 2. Dividends from tax-exempt 1. Refigure line 18, Part II, Schedule organizations. Deductions Allocated or B (page 3 of Form 1120-FSC) without any adjustment under section 1059 and without any 3. Dividends (other than capital gain distributions) received from a real estate investment trust that, for the tax year of the Apportioned to Foreign Trade Income Other Than Foreign capital loss carryback to the tax trust in which the dividends are paid, Trade Income Reported on year under section 1212(a)(1) qualifies under sections 856 through 860. Schedule F 2. Multiply line 1 by 80% Dividends not eligible for a dividends-received deduction, which include 3. Add lines 2, 5, and 7, column (c), the following: Limitations on Deductions and the part of the deduction on line 3, column (c), that is a. Dividends received on any share of Section 263A uniform capitalization attributable to dividends from stock held for less than 46 days during the rules. The uniform capitalization rules of 20%-or-more-owned corporations day period beginning 45 days before the section 263A generally require FSCs to Dividends and Dividends-Received Deduction Worksheet (a) Dividends (c) Dividends-received (See instructions that begin on page 9) received (b) % deduction: (a) x (b) 1 Dividends from less-than-20%-owned domestic corporations that are subject to the 70% deduction (other than debt-financed stock) Dividends from 20%-or-more-owned domestic corporations that are subject to the 80% deduction (other than debt-financed stock) Dividends on debt-financed stock of domestic and foreign corporations (section 246A)... See Inst. 4 Dividends on certain preferred stock of less-than-20%-owned public utilities Dividends on certain preferred stock of 20%-or-more-owned public utilities Dividends from less-than-20%-owned foreign corporations that are subject to the 70% deduction Dividends from 20%-or-more-owned foreign corporations that are subject to the 80% deduction Total dividends-received deduction. Add lines 1 through 7. See instructions for limitation. Enter here and on line 19b, Schedule B Other dividends from foreign corporations not included on lines 3, 6, or Foreign dividend gross up (section 78) Other dividends Total dividends. Add lines 1 through 11. Enter here and on line 9, Schedule F

11 capitalize, or include in inventory, certain amounts if control of the FSC changes. See That individual is an employee of the costs incurred in connection with: section 280G and Regulations section corporation and Personal property (tangible and certain 1.280G-1. His or her travel is for a bona fide intangible property) acquired for resale. Line 1. Enter only foreign direct costs on business purpose and would otherwise be The production of real property and lines 1a through 1e. See section 924(e) and deductible by that individual. tangible personal property by a FSC for use Regulations sections 1.924(e)-1(a) through in its trade or business or in an activity Meals and entertainment. Generally, (e) for definitions and rules on direct activity engaged in for profit. the FSC may deduct only 50% of the costs related to foreign trade income. amount otherwise allowable for meals and Tangible personal property produced Line 4. Depreciation. Include on line 4 entertainment expenses paid or incurred in by a FSC includes a film, sound recording, depreciation and the cost of certain property its trade or business. In addition (subject to videotape, book, or similar property. that the FSC elected to expense under exceptions under section 274(k)(2)): FSCs subject to the section 263A section 179. See Form 4562, Depreciation Meals must not be lavish or extravagant, uniform capitalization rules are required to and Amortization, and its instructions. A bona fide business discussion must capitalize: Line 5. Salaries and wages. Enter the total occur during, immediately before, or 1. Direct costs and salaries and wages paid for the tax year. Do immediately after the meal; and 2. An allocable part of most indirect not include salaries and wages deductible An employee of the FSC must be present costs (including taxes) that (a) benefit the elsewhere on the return, such as amounts at the meal. assets produced or acquired for resale or (b) included in officers compensation, cost of Membership dues. The FSC may are incurred by reason of the performance goods sold, elective contributions to a deduct amounts paid or incurred for of production or resale activities. section 401(k) cash or deferred membership dues in civic or public service arrangement, or amounts contributed under For inventory, some of the indirect organizations, professional organizations a salary reduction SEP agreement or a expenses that must be capitalized are: (such as bar and medical associations), SIMPLE IRA plan. Administration expenses. business leagues, trade associations, Line 10. Compensation of officers. Enter Taxes. chambers of commerce, boards of trade, deductible officers compensation on line 10. Depreciation. and real estate boards. However, no Do not include compensation deductible Insurance. deduction is allowed if a principal purpose of elsewhere on the return, such as amounts Compensation paid to officers attributable the organization is to entertain, or provide included in cost of goods sold, elective to services. entertainment facilities for, members or their contributions to a section 401(k) cash or Rework labor. guests. In addition, FSCs may not deduct deferred arrangement, or amounts Contributions to pension, stock bonus, membership dues in any club organized for contributed under a salary reduction SEP and certain profit-sharing, annuity, or business, pleasure, recreation, or other agreement or a SIMPLE IRA plan. deferred compensation plans. social purpose. This includes country clubs, Line 11. Bad debts. Enter the total debts golf and athletic clubs, airline and hotel Regulations section 1.263A-1(e)(3) that became worthless in whole or in part clubs, and clubs operated to provide meals specifies other indirect costs that relate to during the tax year. A cash basis taxpayer under conditions favorable to business production or resale activities that must be may not claim a bad debt deduction unless discussion. capitalized and those that may be currently the amount was previously included in deductible. Entertainment facilities. The FSC may income. Interest expense paid or incurred not deduct an expense paid or incurred for a Line 14. Other deductions. Attach a during the production period of designated facility (such as a yacht or hunting lodge) schedule, listing by type and amount, all property must be capitalized and is used for an activity usually considered allowable deductions that are not deductible governed by special rules. For more details, entertainment, amusement, or recreation. elsewhere on Form 1120-FSC. Enter the see Regulations sections 1.263A-8 through total on line 14. Amounts treated as compensation A-15. Generally, the FSC may be able to deduct The costs required to be capitalized Examples of other deductions include: otherwise nondeductible entertainment, under section 263A are not deductible until Amortization (see Form 4562). amusement, or recreation expenses if the the property (to which the costs relate) is Insurance premiums. amounts are treated as compensation to the sold, used, or otherwise disposed of by the Legal and professional fees. recipient and reported on Form W-2 for an FSC. Supplies used and consumed in the employee or on Form 1099-MISC or Form business. Exceptions. Section 263A does not apply 1042-S for an independent contractor. Utilities. to: Also see Special rules below for limits on However, if the recipient is an officer, Personal property acquired for resale if certain other deductions. director, or beneficial owner (directly or the FSC s average annual gross receipts for indirectly) of more than 10% of any class of the 3 prior tax years were $10 million or Do not deduct: stock, the deductible expense is limited. See less. Fines or penalties paid to a government section 274(e)(2) and Notice , I.R.B Inventoriable items accounted for in the same manner as materials and supplies that for violating any law. Any amount that is allocable to a class of are not incidental. See Schedule A on exempt income. See section 265(b) for page 7 for details. exceptions. Schedule J For more details on the uniform Special rules apply to the following capitalization rules, see Regulations expenses: Tax Computation sections 1.263A-1 through 1.263A-3. Travel, meals, and entertainment. Subject Line 1 Transactions between related taxpayers. to limitations and restrictions discussed Generally, an accrual basis taxpayer may below, the FSC may deduct ordinary and If the FSC is a member of a controlled only deduct business expenses and interest necessary travel, meals, and entertainment group, as defined in section 927(d)(4), it owed to a related party in the year the expenses paid or incurred in its trade or must check the box on line 1 and complete payment is included in the income of the business. Also, special rules apply to Schedule O (Form 1120). Members of a related party. See sections 163(e)(3), 163(j), deductions for gifts, skybox rentals, luxury controlled group must use Schedule O and 267 for limitations on deductions for water travel, convention expenses, and (Form 1120) to figure the tax for the group. unpaid interest and expenses. entertainment tickets. See section 274 and See Schedule O and its instructions for Golden parachute payments. A portion of Pub. 463, Travel, Entertainment, Gift, and more information. the payments made by a FSC to key Car Expenses, for more details. personnel that exceeds their usual Travel. The FSC may not deduct travel Line 2 compensation may not be deductible. This expenses of any individual accompanying a Most FSCs should figure their tax using the occurs when the FSC has an agreement corporate officer or employee, including a Tax Rate Schedule on page 12. Qualified (golden parachute) with these key spouse or dependent of the officer or personal service corporations should see employees to pay them these excess employee, unless: the instructions on page

12 Tax Rate Schedule If taxable income (Schedule B, line 20) is: Of the But not amount Over over Tax is: over preference items listed on Form 4626, Alternative Minimum Tax Corporations. The FSC must file Form 4626 if its taxable income (or loss) combined with these adjustments and tax preference items is more than the smaller of $40,000 or the FSC s allowable exemption amount (from The excess of additional pension liability over unrecognized prior service cost. If the total adjustment to be entered on line 27 is a negative amount, enter the amount in parentheses. $0 $50,000 15% $0 Form 4626). For this purpose, taxable Schedule M-1 50,000 75,000 $ 7, % 50,000 income does not include the NOL deduction. 75, ,000 13, % 75,000 See Form 4626 for details. Reconciliation of Income (Loss) 100, ,000 22, % 100, ,000 10,000, , % 335,000 See Form 4626 for definitions and details per Books With Income per 10,000,000 15,000,000 3,400, % 10,000,000 on how to figure the tax. Return 15,000,000 18,333,333 5,150, % 15,000,000 Line 5 18,333, % 0 Line 5c. Travel and entertainment. Foreign tax credit. Generally, a FSC may Include on line 5c any of the following: not claim a foreign tax credit. It may, Meal and entertainment expenses not Qualified personal service corporations. however, claim a foreign tax credit for any deductible under section 274(n). A qualified personal service corporation is foreign taxes imposed on foreign source Expenses for the use of an entertainment taxed at a flat rate of 35% on its taxable taxable nonforeign trade income (Schedule facility. income. A FSC is a qualified personal F, Part II) that is treated as effectively The part of business gifts over $25. service corporation if it meets both of the connected with a U.S. trade or business. Expenses of an individual over $2,000, following tests: See Temporary Regulations section which are allocable to conventions on cruise Substantially all of the FSC s activities T(d)(2) for more details. ships. involve the performance of services in the Employee achievement awards over fields of engineering, architecture, or $400. management consulting and Schedule L The cost of entertainment tickets over At least 95% of the corporation s stock, by Balance Sheets per Books face value (also subject to 50% limit under value, is owned, directly or indirectly, by (1) section 274(n)). employees performing the services, (2) The balance sheet should agree with the The cost of skyboxes over the face value retired employees who had performed the FSC s books and records. Include of nonluxury box seat tickets. services listed above, (3) any estate of the certificates of deposit as cash on line 1, The part of luxury water travel expenses employee or retiree described above, or (4) Schedule L. not deductible under section 274(m). any person who acquired the stock of the Line 5. Tax-exempt securities. Include on Expenses for travel as a form of FSC as a result of the death of an employee this line: education. or retiree (but only for the 2-year period State and local government obligations, Other nondeductible travel and beginning on the date of the employee s or the interest on which is excludible from entertainment expenses. retiree s death). gross income under section 103(a) and Note. If the FSC meets these tests, check Stock in a mutual fund or other regulated For more information, see Pub the box on line 2. investment company that distributed Line 7a. Tax-exempt interest. Report any exempt-interest dividends during the tax tax-exempt interest received or accrued, Line 3 year of the FSC. including any exempt-interest dividends Alternative minimum tax (AMT). Unless Line 27. Adjustments to shareholders received as a shareholder in a mutual fund the FSC is treated as a small corporation equity. Some examples of adjustments to or other regulated investment company. exempt from the AMT, it may owe the AMT report on this line include: Also report this amount on line 2, Additional if it has any of the adjustments and tax Foreign currency translation adjustments. Information, on page 2 of the form. Privacy Act and 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. Section 6109 requires return preparers to provide their identifying numbers on the return. 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 The time needed to complete and file this form and related schedule will vary depending on individual circumstances. The estimated average times are: Learning about the Preparing and sending the form Form Recordkeeping law or the form to the IRS 1120-FSC 94 hr., 13 min. 19 hr., 45 min. 38 hr., 56 min. Sch. P (1120-FSC) 9 hr., 48 min. 1 hr., 29 min. 1 hr., 43 min. If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related schedule simpler, we would be happy to hear from you. You may write to Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6406, Washington, DC Do not send the tax form to this office. Instead, see Where To File on page

13 Forms 1120-FSC Using the list of activities and codes below, determine from which activity the FSC derives the Once the principal business activity is determined, entries must be made on Form 1120-FSC, page 2, Principal Business Activity Codes largest percentage of its total receipts. Total Additional Information, lines 1a, 1b, and 1c. For the receipts is defined as the sum of the foreign trading business activity code number, enter the six digit This list of principal business activities and their gross receipts on Form 1120-FSC, page 3, Schedule code selected from the list below. On line 1b, enter a associated codes is designed to classify an B, line 6a, and the total income on page 4, Schedule brief description of the FSC s business activity. enterprise by the type of activity in which it is F, lines 4 and 17. If the FSC s largest percentage of Finally, enter a description of the principal product or engaged to facilitate the administration of the its total receipts is derived from the wholesale service of the FSC on line 1c. Internal Revenue Code. These principal business trading of durable goods, the FSC must use one of activity codes are based on the North American the corresponding codes from the list below Industry Classification System. ( ). Code Code Code Code Wholesale Trade Petroleum & Petroleum Sound Recording Industries Consumer Electronics & Merchant Wholesalers, Durable Products Broadcasting (except Internet) Appliances Rental Goods Beer, Wine, & Distilled Radio & Television Formal Wear & Costume Motor Vehicle & Motor Alcoholic Beverages Broadcasting Rental Vehicle Parts & Supplies Farm Supplies Cable & Other Subscription Video Tape & Disc Rental Furniture & Home Book, Periodical, & Programming Other Consumer Goods Furnishings Newspapers Internet Publishing and Rental Lumber & Other Construction Flower, Nursery Stock, & Broadcasting General Rental Centers Materials Florists Supplies Internet Publishing & Commercial & Industrial Professional & Commercial Tobacco & Tobacco Products Broadcasting Machinery & Equipment Equipment & Supplies Paint, Varnish, & Supplies Telecommunications Rental & Leasing Metal & Mineral (except Other Miscellaneous Telecommunications Petroleum) Nondurable Goods (including paging, cellular, Professional Services Electrical & Electronic Goods Wholesale Electronic Markets and satellite, cable & other Architectural, Engineering, and Hardware, & Plumbing & Agents and Brokers program distribution, Related Services Heating Equipment & Business to Business resellers, & other Architectural Services Supplies Electronic Markets telecommunications) Landscape Architecture Machinery, Equipment, & Wholesale Trade Agents & Internet Service Providers, Web Services Supplies Brokers Search Portals, and Data Processing Engineering Services Sporting & Recreational Services Drafting Services Goods & Supplies Information Internet Service Providers Building Inspection Services Toy & Hobby Goods & Publishing Industries (except Web Search Portals Geophysical Surveying & Supplies Internet) Data Processing, Hosting, & Mapping Services Recyclable Materials Newspaper Publishers Related Services Surveying & Mapping (except Jewelry, Watch, Precious Periodical Publishers Other Information Services Geophysical) Services Stone, & Precious Metals Book Publishers Other Information Services Testing Laboratories Other Miscellaneous Durable (including news syndicates & Directory & Mailing List libraries) Other Professional Services Goods Publishers Management Consulting Merchant Wholesalers, Nondurable Other Publishers Services Goods Rental and Leasing Software Publishers Paper & Paper Products Rental and Leasing Services Motion Picture and Sound Drugs & Druggists Sundries Recording Industries Automotive Equipment Rental Apparel, Piece Goods, & & Leasing Motion Picture & Video Notions Industries (except video Grocery & Related Products rental) Farm Product Raw Materials Chemical & Allied Products -13-