Form 1120-IC-DISC – 8 Steps to File Yours Before the Deadline
Form 1120-IC-DISC is an IRS tax form required by corporate structures. It’s separate from the form that registers your business as a tax incentive entity, Form 4876-A. Knowing when to file this tax form will keep your corporation compliant. What is Form 1120?
Form 1120, Interest Charge Domestic International Sales Corporation Return, is a yearly tax form requesting information on taxable income, cost of goods sold, gross income, deductions, dividends, distributions, inclusions, and income reconciliations. Current and former tax incentive entities must apply within nine months after the end of their tax year by the 15th day. No extensions are allowed on this form.
You’re in the right place if you have questions about this revenue return. We’ll demystify Form 1120, discussing who needs to file and providing filing instructions.
How to Fill Out the 1120-IC-DISC Form
Your corporation’s tax break depends on completing Form 1120-IC-DISC accurately. The following steps will help you navigate the ins and outs of this form as you file for the first time.
1. Providing Entity Information and Classification
The top of the tax report requests your IC-DISC election date, Employee Identification Number, business name, business address, incorporation date, business activity code number, and total assets.
You must also check from five categories: amended return, address change, name change, final return (as a soon-to-be former Interest Charge Corporation), or initial return.
Mark if any party owned at least 50 percent of your voting stock, then check a box if you used intercompany pricing rules for gross income. Your options are arm’s length pricing, the four-percent gross receipts method, or the 50-50 combined taxable income method.
2. Reporting Income from Qualified Export Receipts (QERs)
Your corporate structure had to report your Qualified Export Receipts or QERs to apply for Interest Charge Corporation status. Form 1120 requires you to report QER income, so calculate and mark it on the form.
3. Deducting Commissions Paid to the IC-DISC
In Schedule B, Gross Income, track commission sales (by commission or gross receipt) for all types of receipts, including direct foreign sales to unrelated purchasers and unrelated IC-DISCs.
4. Calculating the IC-DISC’s Taxable Income
Determining your taxable income requires adding all your income sources and subtracting deductions. Between Schedules B, C, and E, you can detail all areas where your corporation derived income.
5. Reconciling Net Income on Schedule P
Schedule P is for reconciling your net income from partnerships or expenses from effectively connected income or ECI with interests from partnerships with foreign corporations. This separate section of Form 1120 includes five parts.
6. Reporting Balance Sheet Information
Schedule L, Balance Sheets per Books, helps your corporation balance income and assets between the beginning and end of the tax year. The categories include shareholder’s equity and liabilities and assets.
7. Completing Schedule M-3 for Tax Adjustments
Schedule M-3, Analysis of Previously Taxed Income, measures your balance at the start of the year, itemized increases, deemed distributions according to Section 995(b), deficits in profits and earnings, itemized decreases, and distributions under Section 992(c).
8. Other Relevant Details and Attachments
Completing Form 1120 sometimes requires additional details and attachments, usually related to tax forms. Include this information in your tax submission to expedite its filing.
You can count on Export Tax Management to ensure you complete this tax report correctly the first time. Get in touch today to explore our services.
Overview of Form 1120-IC-DISC
What Is Form 1120-IC-DISC, and What Is the 1120 Series?
You already declared yourself an IC-DISC through Form 4876-A. Every year your corporation proceeds under this tax declaration, you must send the IRS your completed Form 1120.
Boiling it down simply, this tax form tracks your yearly income. It includes sections A through O, with detailed line information for taxable income, dividends, gross income, deductions, cost of goods sold, and net operating loss deductions, among other requirements by section.
This declaration form is a part of the larger 1120 Series, which includes 1120S, 1120-C, and 1120-H. Here’s a breakdown of what each form is:
- Form 1120: Required of C-corporations operating as IC-DISCs
- Form 1120S: Known as the U.S. Income Tax Return for an S Corporation and required of S corps filing tax returns
- Form 1120-C: The U.S. Income Tax Return for Cooperative Associations
- Form 1120-H: The U.S. Income Tax Return for Homeowners Associations, the tax return for housing associations and condominiums
President Woodrow Wilson created Form 1120 and mandated it for applicable corporations after World War I. It’s been a required form since 1918.
Who Needs to File the Form?
According to the IRS, current and former IC-DISCs should file. A former tax incentive entity doesn’t qualify for this tax year but did for prior years. Your corporation might have accumulated IC-DISC income or taxed undistributed income.
As a former Interest Charge Corporation, you can skip the taxable income schedules and lines 1 through 8 on the first page of the form. You can’t skip Schedules J through M. The IRS advises writing “Former IC-DISC” in those sections.
Only certain parties can sign off on Form 1120-IC-DISC. They include your corporation’s president or vice president, a corporate officer, a chief accounting officer, or a treasurer or assistant treasurer.
If you have an assignee, trustee, or receiver who will file Form 1120 for your export incentive corporation, you can’t have a corporate officer sign the form. Instead, one of the above parties should do it.
When Do You Need to File Form 1120?
Form 1120 should be completed and ready for filing within nine months after your corporate tax year ends by no later than the 15th of the month.
Are Extensions Offered?
The IRS doesn’t provide extensions for this tax document. However, if the 15th isn’t a business day, such as a legal holiday or a weekend, you can file the next business day and be within the deadline.
Do you need directions for drafting your taxation forms as a corporate structure? Export Tax Management specializes in implementation and compliance. Find out how we can be of assistance by contacting us today.
Reporting Requirements for Form-1120-IC-DISC
Carefully filing the taxation Form 1120 will save you tax headaches later. Here is more information on the overarching information required on the form.
Income
Your IC-DISC will report all areas of income on this tax report, including:
- Taxable income
- Refundable credits for fuel-related federal tax
- Total income
- Costs of goods sold
- Gross income
- Direct foreign sales to related and unrelated purchasers
- Renting or leasing export property
- Producer loan interest
- Other interest
- Export management services
- Architectural and engineering services
- Nonqualified inclusions and dividends
- Sales to controlled group IC-DISCs
- Leases, indirect sales, and direct sales for use by the United States government
- Exports the US government subsidizes
Cost of Goods Sold
Form 1120-IC-DISC requires this information on your costs of goods sold for the most recent tax year:
- Inventory at the start of the year
- Inventory by the end of the year
- Labor costs
- Purchases
You must also detail how you valued your closing inventory, including whether you used the market or cost.
Deductions
Don’t forget to log your deductions whether a current or former Interest Charge Corporation, such as:
- Freight and related insurance
- Contributions
- Interest
- Licenses and taxes
- Bad debts
- Employee benefit programs
- Profit-sharing and pension plans
- Maintenance and repairs
- Warehousing
- Sales commissions
- Rents
- Wages and salaries
- Depreciation
- Advertising
- Market studies
- Export promotion expenses
Dividends
Qualified dividends required on Form 1120 are:
- Total dividends
- Section 250 deductions (please include Form 8993)
- Other dividends
- Global Intangible Low-Taxed Income or GILTI dividends (include Form 8992 and 5471)
- Subpart F dividends (include Form 5471)
- Foreign corporation dividends besides those included on lines 3 through 10
- Foreign-sourced dividends from a foreign corporation with 10 percent ownership
- Dividends from foreign subsidiaries you wholly own
- Dividends from foreign corporations where you have more than 20 percent ownership or fewer
- Dividends on public utility stock (where you own more or less than 20 percent) with preferred stocks
- Dividends from domestic corporations outside of debt-financed stock where you have 20 percent ownership or fewer
Taxation of IC-DISC and Its Benefits
Making your tax declaration through Form 1120-IC-DISC puts your Interest Charge Corporation in an advantageous position.
Many IC-DISC benefits await you, including:
- Deferring tax liability
- Can obtain up to $10 million in commissions before paying them as dividends
- The freedom to allocate the additional income as needed, whether for warehousing, increasing staff, or marketing
- Longer-term, consistent tax benefits
Common Mistakes to Avoid
Your export incentive corporation can only expect the above benefits by completing Form 1120 accurately. Paying attention to detail and triple-checking for accuracy will help.
Here are some more tips for compliance and error reduction:
- Separate your personal and business expenses, as Form 1120 has no section for personal expenses.
- File your IC-DISC tax forms separately from the rest of your corporate tax reporting.
- Establish good record-setting habits after your tax declaration to make filing Form 1120 easier yearly.
- Confirm which supporting documents you require and attach them.
Export Tax Management will guide your export incentive corporation toward compliance with our professional service. Contact us before your forms are due.
Work With Export Tax Management Before Filing Form 1120
Filing forms as a tax entity ensures you can take advantage of Interest Charge Corporation benefits. You need a partner well-versed in the specifications, procedures, and guidelines of Form 1120-IC-DISC.
Export Tax Management is your choice when filing export incentive corporation taxes. Our years of expertise mean we’ve seen all IC-DISC situations and can guide you through the prompt filing of your tax form.
