SCHEDULE-P Intercompany Transfer Price .....

2006 Schedule P (Form 1120-IC-DISC),
Intercompany Transfer Price or Commission
Purpose:

This is the first circulated draft of the 2006 Schedule P (Form 1120IC-DISC) for your review and comments. There are no major
changes.

TPCC meeting:

None, but may be arranged if requested.

Prior Version:

The 2005 Schedule P (Form 1120-IC-DISC) may be accessed at:
http://publish.no.irs.gov/FORMS/PUBLIC/PDF/11478Y05.PDF

Other products: Circulations of draft tax forms and instructions are posted at:
http://taxforms.web.irs.gov/draft_products.html. Draft publications
are not available.
Comments:

Please e-mail or call any comments by Friday, September 1,
2006.

From: Diane Regier
Tax Law Specialist
Corporate Section
Business Forms and Publications Branch
Tax Forms and Publications Division
SE:W:CAR:MP:T:B:C

PHONE: (202)622-3695
(leave voice mail)
Email:
[email protected]

ROOM:

Temporarily
at New
Carrollton
Federal
Building

Date:
July 31, 2006

2006 Form 1120-IC-DISC SCH P
Intercompany Transfer Price or Commission

Description of Major Changes
We will no longer be revising this product on an annual basis. Instead, we will revise this
product only when the need arises.

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TLS, have you
transmitted all R
text files for this
cycle update?

Date

I.R.S. SPECIFICATIONS

TO BE REMOVED BEFORE PRINTING

INSTRUCTIONS TO PRINTERS
SCHEDULE P (FORM 1120-IC-DISC), PAGE 1 of 2
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES.
PAPER: WHITE WRITING, SUB. 20.
FLAT SIZE: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: (NONE)

PRINTS: HEAD TO HEAD
INK: BLACK

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

SCHEDULE P
(Form 1120-IC-DISC)
(Rev. December 2006)
Department of the Treasury
Internal Revenue Service

Action

Date

Signature

O.K. to print
Revised proofs
requested

Intercompany Transfer Price or Commission
Attach a separate schedule for each transaction or group of transactions to
which the intercompany pricing rules under section 994(a)(1) and (2) are applied.
For the calendar year 20 , or fiscal year beginning
20 , and ending
, 20
For amount reported on line
, Schedule
, Form 1120-IC-DISC

Name as shown on Form 1120-IC-DISC

OMB No. 1545-0938

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Employer identification number

Identify product or product line reported on this schedule. (Also, enter the Principal Business Activity code
number, if used.) (See instructions.)

This schedule is for a (check one):
Single transaction
Group of transactions

Part I
IC-DISC Taxable Income
SECTION A—Combined Taxable Income
1
2
a
b
c
d
e
3
4
5
a
b
c
d
6
7
8

Section A-1—If marginal costing is not used
Gross receipts from transaction between IC-DISC (or related supplier) and third party
Less costs and expenses allocable to gross receipts from transaction:
Cost of goods sold from property if sold, or depreciation from property if leased 2a
2b
Related supplier’s expenses allocable to gross receipts from transaction
2c
IC-DISC export promotion expenses allocable to gross receipts from transaction
2d
Other IC-DISC expenses allocable to gross receipts from transaction
Add lines 2a through 2d
Combined taxable income. Subtract line 2e from line 1. If a loss, enter -0-

1

2e
3

Section A-2—If marginal costing is used
Gross receipts from resale by IC-DISC (or sale by related supplier) to third party
Costs and expenses allocable to gross receipts from sale:
5a
Cost of direct material from property sold
5b
Cost of direct labor from property sold
IC-DISC export promotion expenses allocable to gross receipts from sales that
5c
are claimed as promotional
Add lines 5a through 5c
Combined taxable income or (loss) before application of overall profit percentage limitation. Subtract
line 5d from line 4. If a loss, skip lines 7 through 11 and enter -0- on line 12
Gross receipts of related supplier and IC-DISC (or controlled group) from all foreign and domestic
sales of the product or product line
Costs and expenses of related supplier and IC-DISC (or controlled group) allocable to gross income
from such sales:
8a
Cost of goods sold from property sold
8b
Expenses allocable to gross receipts from such sales

a
b
c Add lines 8a and 8b
9 Subtract line 8c from line 7. If a loss, skip lines 10 and 11 and enter -0- on line 12
10 Overall profit percentage. Divide line 9 by line 7. Check if controlled group optional method
©
is used
11 Overall profit percentage limitation. Multiply line 4 by line 10
12 Combined taxable income. Enter the smaller of line 6 or line 11

4

5d
6
7

8c
9
10
11
12

%

SECTION B—50-50 Combined Taxable Income Method (Must be used if marginal costing is used. See instructions.)
13
14
15
16
17

Combined taxable income. Enter amount from line 3 or line 12
Multiply line 13 by 50% (.50)
Enter 10% (.10) of IC-DISC export promotion expenses allocable to gross income from transactions
that are claimed as export promotion
Add lines 14 and 15
IC-DISC taxable income. Enter the smaller of line 13 or line 16

13
14
15
16
17

SECTION C—4% Gross Receipts Method (Cannot be used if marginal costing is used.)
18
19
20
21
22
23

Gross receipts from transaction. Enter amount from line 1
Multiply line 18 by 4% (.04)
Multiply line 2c by 10% (.10)
Add lines 19 and 20
Combined taxable income. Enter amount from line 3 or amount computed under special rule. If special
rule is applied, check here
. See instructions
IC-DISC taxable income. Enter the smaller of line 21 or line 22

For Privacy Act and Paperwork Reduction Act Notice, see the Instructions for Form 1120-IC-DISC.

Cat. No. 11478S

18
19
20
21
22
23

Schedule P (Form 1120-IC-DISC) (Rev. 12-2006)

1
I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
SCHEDULE P (FORM 1120-IC-DISC), PAGE 2 of 2
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO HEAD
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: (NONE)
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Schedule P (Form 1120-IC-DISC) (Rev. 12-2006)

Part II
24
25
a
b
c
d
26

2

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Gross receipts from transaction. Enter amount from line 1 or line 4, Part I
Less reductions:
25a
IC-DISC taxable income (but not to exceed amount determined in Part I)
25b
IC-DISC export promotion expenses allocable to gross income from transaction
25c
Other IC-DISC expenses allocable to gross income from transaction
Add lines 25a through 25c
Transfer price from related supplier to IC-DISC. Subtract line 25d from line 24

Part III
27
28
29
30

Page

Transfer Price From Related Supplier to IC-DISC (See instructions.)

24

25d
26

IC-DISC Commission From Related Supplier (See instructions.)

IC-DISC taxable income (but not to exceed amount determined in Part I)
IC-DISC export promotion expenses allocable to gross receipts from transaction
Other IC-DISC expenses allocable to gross receipts from transaction
IC-DISC commission from related supplier. Add lines 27 through 29

Instructions
Section references are to the Internal
Revenue Code unless otherwise noted.
Purpose of schedule. Use Schedule P to
show the computation of taxable income
used in computing (1) the transfer price from
a related supplier to an IC-DISC (Part II) or (2)
the IC-DISC commission from a related
supplier (Part III).
Complete and attach a separate
Schedule P to Form 1120-IC-DISC for each
transaction or group of transactions to which
the intercompany pricing rules of sections
994(a)(1) and (2) are applied.
IC-DISC taxable income. Generally, the
intercompany pricing determinations are to be
made on a transaction-by-transaction basis.
However, the IC-DISC may make an annual
election to determine intercompany pricing on
the basis of groups consisting of products or
product lines. If the group basis is elected,
then all transactions for that product or
product line must be grouped. Each group is
limited to one type of transaction (i.e., sales,
leases, or commissions).
A product or product line determination will
be accepted if it conforms to either of the
following standards: (1) a recognized industry
or trade usage or (2) major product groups (or
any subclassifications within a major product
group) (see Schedule P (Form 1120-IC-DISC)
Codes for Principal Business Activity on page
14 of the Instructions for Form
1120-IC-DISC). The corporation may choose
a product grouping for one product and use
the transaction-by-transaction method for
another product within the same tax year.
Generally, the computation of taxable
income under the intercompany pricing rules
will not be permitted to the extent that their
application would result in a loss to the
related supplier.
Each of the following methods may be
applied for sales, leases, and services. See
the regulations under section 994.
50-50 combined taxable income method.
The transfer price the related supplier charges
the IC-DISC, or the related supplier’s IC-DISC
commission, is the amount that lowers the
taxable income the IC-DISC derives from the

transaction to an amount that is no more than
the sum of (1) 50% of the IC-DISC’s and
related supplier’s combined taxable income
attributable to the qualified export receipts
from the transaction and (2) 10% of the
IC-DISC’s export promotion expenses (as
defined in Regulations section 1.994-1(f))
attributable to the qualified export receipts.
Do not include in combined taxable income
(line 13) the discount amount reflected in
receivables (on the sale of export property)
that a related supplier transferred to the
IC-DISC. See Regulations sections
1.994-1(c)(3) and (6)(v).
See Part I, Section A instructions below if
marginal costing rules apply.
4% gross receipts method. The transfer
price charged by the related supplier to the
IC-DISC or IC-DISC commission from the
related supplier is the amount that ensures
that the taxable income derived by the
IC-DISC from the transaction does not
exceed the sum of (1) 4% of the qualified
export receipts of the IC-DISC derived from
the transaction and (2) 10% of the export
promotion expenses (as defined in
Regulations section 1.994-1(f)) of the IC-DISC
attributable to the qualified export receipts.
Section 482 method. The transfer price
the related supplier charged the IC-DISC, or
IC-DISC commission from the related
supplier, is the amount actually charged, but
is subject to the arm’s length standard of
section 482. Do not complete Schedule P if
the section 482 method is used.
Incomplete transactions. For the 50-50
and 4% methods, if the related supplier sells
property to the IC-DISC during the year but
the IC-DISC does not resell it during the year,
the related supplier’s transfer price to the
IC-DISC must equal the related supplier’s
cost of goods sold. Do not complete
Schedule P for incomplete transactions. The
related supplier’s transfer price to the
IC-DISC must be recomputed for the year in
which the IC-DISC resells the property and
the transaction must then be reported on
Schedule P for that year.
Part I, Section A—Combined Taxable
Income. Complete Section A-1 only if
marginal costing is not used.

27
28
29
30

For purposes of line 2d, be sure to include
the appropriate apportionment of deductions
that are not directly allocable such as interest
expenses and stewardship expenses. See
Temporary Regulations sections 1.861-11T(f)
and 1.861-14T(f) for an explanation of
appropriate apportionment.
Complete Section A-2 if marginal costing is
used. The marginal costing rules may be used
only for sales, or commissions on sales, of
property if the 50-50 method is used.
Marginal costing cannot be used for
(1) leasing of property, (2) performance of
services, or (3) sales of export property that
(in the hands of a purchaser related under
section 954(d)(3) to the seller) give rise to
foreign base company sales income as
described in section 954(d) unless, for the
purchaser’s year in which it resells the
property, section 954(b)(3)(A) applies or the
income is under the exceptions in section
954(b)(4).
Line 10. The overall profit percentage may
be computed under an optional method. See
Regulations section 1.994-2(c)(2) for details.
Part I, Section B and Section C. Complete
Section B or Section C. You must complete
Section B if marginal costing is used.
Line 22. If IC-DISC taxable income on a
sale is computed under the 4% method and
the IC-DISC chooses to apply the special rule
for transfer prices or commissions, check the
box in line 22 and attach a separate
computation of the limitation on IC-DISC
taxable income determined under the special
rule and enter the amount on line 22. Under
the special rule, a transfer price or
commission will not be considered to cause a
loss for a related supplier if the IC-DISC’s net
profit on the sale does not exceed the
IC-DISC’s and related supplier’s net profit
percentage on all their sales of the product or
product line. See Regulations section
1.994-1(e)(1)(ii) for details.
Reporting Part II and Part III amounts on
Form 1120-IC-DISC. If the computed transfer
price for sales, leases, or services (Part II) or
IC-DISC commission (Part III) is entered on
more than one line of Form 1120-IC-DISC,
attach an explanation indicating the portion of
the total that is applied to each line.

Schedule P (Form 1120-IC-DISC) (Rev. 12-2006)