Form 8404 Interest Charge on DISC-Related Deferred Tax Liability

Form

8404

Interest Charge on DISC-Related
Deferred Tax Liability

Department of the Treasury
Internal Revenue Service

OMB No. 1545-0939

2007

© File Form 8404 separately from your income tax return. See Where to file below.

A Check applicable box to
show type of taxpayer:

Name of shareholder

Corporation
Individual
Trust or
Decedent’s estate

B Shareholder’s identifying
number

Address (number, street, room, suite, or P.O. box number)
C IC-DISC’s identifying
number

City, state, and ZIP code

D Shareholder’s tax year for which interest charge is required to be paid (see instructions)

E Name of IC-DISC

Note: See line-by-line instructions.
1
2
3
4
5
6
7
8
9

1
2
3
4
5
6
7
8
9

Taxable income or loss on tax return (actual or estimated)
Deferred DISC income from line 10, Part III, Schedule K (Form 1120-IC-DISC)
Section 995(f)(2) adjustments to line 1 income or loss
Combine lines 1, 2, and 3. If zero or less, do not file this form
Tax liability on line 4 amount
Tax liability per return (actual or estimated)
DISC-related deferred tax liability. Subtract line 6 from line 5.
Base period T-bill rate factor
Interest charge due. Multiply line 7 by line 8. (See Paying the interest charge below.)

Sign
Here
Paid
Preparer’s
Use Only

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge
and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

©

© Date

Signature and Title (if any)

Preparer’s
signature

©

Firm’s name (or yours if
self-employed), address,
and ZIP code

Check if
selfemployed

Date

©

General Instructions
Section references are to the Internal Revenue
Code unless otherwise noted.
Purpose of form. Shareholders of Interest
Charge Domestic International Sales
Corporations (IC-DISCs) use Form 8404 to
figure and report their interest owed on
DISC-related deferred tax liability.
Who must file. You must file Form 8404 if:
(a) you are a shareholder of an IC-DISC;
(b) the IC-DISC reports deferred DISC income
to you on line 10, Part III of Schedule K
(Form 1120-IC-DISC); and (c) the addition of
this income would result in increased taxable
income if it were included on your tax return
for the tax year.
When to file. File Form 8404 by the due date
of your Federal income tax return (excluding
extensions) for your tax year that ends with or
includes the IC-DISC’s tax year end.
For example, you are a fiscal year
corporation with a July 1, 2007, to June 30,
2008, tax year and you are a shareholder in

EIN
Phone no.

an IC-DISC with a July 1, 2007, to June 30,
2008, tax year that reports deferred DISC
income to you for its tax year ending June 30,
2008. Because your tax year ends with the
IC-DISC’s tax year, you are required to file
Form 8404 on or before September 15, 2008
(21⁄ 2 months after your tax year ends).
Paying the interest charge. You must pay
the interest charge shown on line 9 by the
date your Federal income tax for the tax year
is required to be paid. For individuals, the
interest is due on the 15th day of the 4th
month following the close of the tax year. For
corporations, the interest is due on the 15th
day of the 3rd month following the close of
the tax year.
Attach a check or money order made
payable to “United States Treasury” for the
full amount of the interest charge. Do not
combine the interest charge with any other
tax or interest due. Write your identification
number and “Form 8404—Interest Due” on
your payment. Do not use Form 8109, Federal
Tax Deposit Coupon.

Where To File

Cincinnati, OH 45999

Individual

Austin, TX 73301-0215

)

If the interest charge is not paid by the due
date, interest, compounded daily, at the rate
specified under section 6621, will be imposed
on the amount of unpaid interest from the
due date until the date the interest is paid.
Payment of estimated tax is not required
for the interest charge. See Proposed
Regulations section 1.995(f)-1(j)(3) for other
details.
For corporations (other than S
corporations), the annual interest charge is
deductible as an interest expense for the tax
year it is paid or accrued. See Proposed
Regulations section 1.995(f)-1(j)(2) for details
on the tax year of deductibility. For other
filers, this interest is not deductible.
Amended Form 8404. You are required to file
an amended Form 8404 only if the amount of
the DISC-related deferred tax liability (line 7)
changes as a result of audit adjustments,
changes you make by the filing of an
amended return, or if estimates were used on
your original Form 8404 and changes were
made to these estimates when you filed your
tax return. See Proposed Regulations section
1.995(f)-1(j)(4) for details.

Name and address. Enter the name and
address as shown on your tax return from
which the income or loss on line 1 of Form
8404 is obtained. If the return is a joint return,
also enter your spouse’s name as shown on
Form 1040.

Use the following Internal Revenue
Service Center address:

Corporation, Trust, or Decedent’s estate

(

Specific Instructions

File Form 8404 at the applicable IRS address listed below.
If you checked the box in
Item A for:

Preparer’s SSN or PTIN
©

File Form 8404 separately from your income tax return (i.e., file them in separate envelopes).
Keep a copy for your records.
For Privacy Act and Paperwork Reduction Act Notice, see page 2.

Cat. No. 62423Z

Form

8404

(2007)

Form 8404 (2007)

Item A—Type of taxpayer. Check the
applicable box to indicate your status as a
taxpayer.
Partnerships and S corporations distribute
their share of deferred DISC income to
partners and shareholders and the partners
and shareholders complete Form 8404.
Item B—Shareholder’s identifying number.
Individuals must enter their social security
number. Other filers must enter their employer
identification number.
Item C—IC-DISC’s Identifying number.
Enter the identifying number of the IC-DISC
from the Schedule K (Form 1120-IC-DISC) on
which the deferred DISC income was
reported to you. If income is reported to you
from more than one IC-DISC, enter each
IC-DISC’s identifying number in item C, each
IC-DISC’s name in item E, and report the
combined income on line 2.
Item D—Tax year. Enter in item D the
calendar year or the beginning and ending
dates of the tax year shown on your tax
return for which the interest charge is figured.

Special Computation Rules
Carrybacks. The determination of the
shareholder’s DISC-related deferred tax
liability on lines 1 through 7 shall be made
without taking into account any net operating
loss (NOL), capital loss carryback, or credit
carryback to the tax year.
Carryovers. The determination of the
shareholder’s tax liability (line 5) for the tax
year is made by disregarding any loss,
deduction, or credit to the extent that such
loss, deduction, or credit may be carried
(either back or forward) by the shareholder to
any other tax year.
Note. If the tax year is the last tax year to
which the amount of carryforward (of loss,
deduction, or credit) may be carried, the line
3 adjustments and line 5 tax shall be figured
with regard to the full amount of such
carryforward.
For example, a shareholder had a NOL
carryover to 2008 of $12,000; $10,000 income
to which $10,000 of the NOL can be applied;
$2,000 allowable NOL carryover to 2009; and
$5,000 deferred DISC income for 2008. In this
case, for purposes of figuring line 5, the
allowed NOL is $10,000. Note. If 2008 were
the last tax year to which the $12,000 NOL
could be carried, the full $12,000 NOL would
be allowed for purposes of figuring line 5 tax
liability. The additional $2,000 loss would be
entered on line 3.
Other adjustments. In figuring line 3
adjustments, take into account any income
and expense adjustments that do not result in
amounts that may be carried back or forward
to other tax years. For example, in the case
of an IC-DISC shareholder who is an
individual, the amount of medical expenses
allowable as a deduction under section 213
must be redetermined for purposes of line 3
adjustments. However, the amount allowable
as a charitable deduction under section 170
is not redetermined because this adjustment
could result in a carryback or carryover.
See Proposed Regulations section
1.995(f)-1(d) for other details regarding these
and other special computation rules.

Line-by-Line Instructions
Line 1. Enter on line 1 the taxable income or
loss from your Federal income tax return for
your tax year that ends with or includes the

Page

IC-DISC’s tax year end. If you have not yet
filed your tax return, estimate your income or
loss based on all information available to you.
See Amended Form 8404 on page 1.
Line 2. Enter the deferred DISC income from
line 10, Part III of Schedule K (Form
1120-IC-DISC), for the IC-DISC tax year that
ends with or within your tax year.
Line 3. Enter the net amount of all section
995(f)(2) adjustments to taxable income. See
Special Computation Rules above for details
on the income (loss) and expense
adjustments to be made. If more than one
adjustment is involved, attach a schedule
listing each item and show the computation
of the net amount.
Lines 5 and 6. “Tax liability” on lines 5 and 6
(with and without the deferred DISC income)
means the amount of tax imposed on the
IC-DISC shareholder for the tax year by
Chapter 1 of the Internal Revenue Code
(other than taxes listed below) reduced by
credits allowable against such tax (other than
credits listed below).
See Special Computation Rules above for
rules for carrybacks and carryovers. These
rules may affect the line 5 computation.
The following taxes are not taken into
account:
● Alternative minimum tax.
● Any other provisions described in section
26(b)(2) (relating to certain other taxes treated
as not imposed by Chapter 1).
The following credits are not taken into
account:
● Section 31 (taxes withheld on wages).
● Section 32 (earned income credit).
● Section 34 (fuels credit).
For 2007, a Form 1040 filer or a Form 1120
filer using the above rules will generally figure
their line 6 tax liability using the following
items shown on the following lines of those
forms. All other filers should use the
corresponding lines of other income tax
returns. If you have not yet filed your return,
estimate the line 6 tax liability based on all
information available to you.
2007
2007
Form 1040 Form 1120
Line
Line
Tax less nonrefundable
credits
Plus: (1) Advance earned
income credit
payments
(2) Recapture taxes
(except Form 8828)
(3) Prior year minimum
tax credit
Less: (1) Alternative minimum
tax
(2) Additional child tax
credit
(3) Credit for tax paid on
undistributed capital
gains (Form 2439)
(4) Health insurance
credit for eligible
recipients (Form
8885)

57

7, Sch. J

61

*

*

55b

5d, Sch. J

45

3, Sch. J

68

70a

32f, pg. 1

70c

* Caution: Only use the portion of Form 1040, line 63,
or Form 1120, Schedule J, line 9, attributable to
recapture of credits allowable against taxes treated
as imposed under Chapter 1 (e.g., recapture of
investment tax and low-income housing credits).

2

Line 8. The base period T-bill rate is defined
in section 995(f)(4). The base period T-bill rate
is compounded daily based on the number of
days in the shareholder’s tax year to
determine the base period T-bill rate factor.
The base period T-bill rate factor for 2007
is .049901921 for a 365-day tax year. Enter
the appropriate factor on line 8 of Form 8404.
See Rev. Rul. 2007-64, 2007-45 I.R.B. 953,
for a short tax year or a 52-53 week tax year.
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. We need it to figure and
collect the right amount of tax. Section 995(f)
requires taxpayers to pay over to the IRS
interest on DISC-Related Deferred Tax
Liability. This form is used to determine the
amount of tax that you owe. Sections 6001
and 6011 require you to provide the
requested information if the tax applies to
you. Section 6109 requires you to provide
your social security number or other
identifying number. Routine uses of this
information include disclosing it to the
Department of Justice for civil and criminal
litigation and to other federal agencies, as
provided by law. We may disclose the
information to cities, states, the District of
Columbia, and U.S. Commonwealths or
possessions to administer their tax laws. We
may disclose the information to foreign
governments pursuant to tax treaties. We
may disclose the information to the
Department of the Treasury and contractors
for tax administration purposes. We may also
disclose this information to other countries
under a tax treaty, to Federal and state
agencies to enforce Federal nontax criminal
laws, or to Federal law enforcement and
intelligence agencies to combat terrorism. If
you do not file this information required by
law or provide incomplete or fraudulent
information, you may be subject to interest,
penalties, and/or criminal prosecution.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB control
number. Books or records relating to a form
or its instructions must be retained as long as
their contents may become material in the
administration of any Internal Revenue law.
Generally, tax returns and return information
are confidential, as required by section 6103.
The time needed to complete and file this
form will vary depending on individual
circumstances. The estimated average time
is:
Recordkeeping
4 hr., 4 min.
Learning about the
law or the form
2 hr., 17 min.
Preparing, copying
and sending the form
to the IRS
2 hr., 27 min.
If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form simpler, we
would be happy to hear from you. You can
write to the Internal Revenue Service, Tax
Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave.
NW, IR-6526, Washington, DC 20224.
Do not send the form to this office. Instead,
see Where to file on page 1.