Printable Form 2026

IRS Form 1120-IC-DISC (Schedule P)

IRS Form 1120-IC-DISC (Schedule P) – Businesses that operate an Interest Charge Domestic International Sales Corporation (IC-DISC) to maximize export tax benefits rely heavily on accurate intercompany pricing. IRS Form 1120-IC-DISC Schedule P (also known as Form 1120idp) is the key schedule used to compute and document the allowable intercompany transfer price or commission between the IC-DISC and its related supplier under IRC Section 994.

This comprehensive guide, based on the official IRS Instructions for Form 1120-IC-DISC (Rev. December 2025) and Schedule P (Rev. September 2017), explains everything you need to know — from when to file it to step-by-step completion instructions. Whether you’re preparing your 2025 tax return or planning export strategies for 2026, this resource ensures compliance while optimizing your IC-DISC’s taxable income allocation.

What Is Schedule P (Form 1120-IC-DISC)?

Schedule P shows the computation of taxable income used to determine:

  • The transfer price from a related supplier to the IC-DISC (buy/sell transactions — Part II), or
  • The IC-DISC commission from a related supplier (commission agent transactions — Part III).

You must attach a separate Schedule P for each individual transaction or for each group of transactions (by product or product line) to which the special intercompany pricing rules of IRC Sections 994(a)(1) and 994(a)(2) apply.

Official Download Links (Current as of 2026):

The form itself has not changed since its September 2017 revision and remains the required version for current filings.

Who Must Attach Schedule P?

Attach Schedule P to Form 1120-IC-DISC whenever the IC-DISC uses:

  • The 4% gross receipts method, or
  • The 50% combined taxable income (CTI) method

to figure its taxable income attributable to qualified export receipts from products or product lines.

Do NOT complete Schedule P if you use the Section 482 arm’s-length method exclusively (the actual sale price must clearly reflect income under standard transfer pricing rules).

Schedule P is required for Line 7 (Taxable Income) on the main Form 1120-IC-DISC when these special methods apply. It also supports entries in Schedule A (Cost of Goods Sold) for related-supplier purchases.

Intercompany Pricing Rules Under IRC Section 994

These special rules allow an IC-DISC and its related supplier to allocate more profit to the IC-DISC than standard arm’s-length pricing would permit — without causing a loss to the related supplier.

The IC-DISC’s taxable income from a sale may not exceed the greatest of:

  1. 4% Gross Receipts Method: 4% of qualified export receipts (QER) + 10% of the IC-DISC’s export promotion expenses attributable to those receipts.
  2. 50/50 Combined Taxable Income Method: 50% of the combined taxable income (CTI) of the IC-DISC and related supplier from the QER + 10% of the IC-DISC’s export promotion expenses.
  3. Section 482 Method: Taxable income based on the actual price charged (only if it satisfies arm’s-length standards).

Export Promotion Expenses (IRC Section 994(c)) include costs to distribute or sell export property outside the U.S. (e.g., advertising, market research). They exclude income taxes but include 50% of certain U.S.-flag shipping costs in qualifying cases.

Important Limitation: Intercompany pricing cannot result in a loss to the related supplier.

Key Concepts You Must Understand

  • Combined Taxable Income (CTI): Gross receipts from the third-party sale minus allocable costs and expenses of both the IC-DISC and related supplier.
  • Marginal Costing (optional for 50/50 method only): Allows simplified costing for certain property sales (direct material + direct labor + allocable export promotion expenses). Not allowed for leases, services, or certain export property.
  • Grouping: You may group by transaction, product, or product line (must follow recognized industry usage). An annual election is available.
  • Incomplete Transactions: Special rules apply if goods are not yet resold by the IC-DISC.

How to Complete Schedule P Step-by-Step?

Header Information:

  • Name, EIN, tax year.
  • Identify the product or product line and Principal Business Activity code.
  • Check “Single transaction” or “Group of transactions.”

Part I — IC-DISC Taxable Income

Section A-1 (No Marginal Costing):

  • Line 1: Gross receipts from third-party sale.
  • Line 2: Allocable costs/expenses (COGS or depreciation, related supplier expenses, IC-DISC export promotion & other expenses).
  • Line 3: CTI (Line 1 – Line 2e). Enter -0- if loss.

Section A-2 (With Marginal Costing — 50/50 Method Only):

  • Lines 4–6: Simplified direct costs.
  • Lines 7–12: Overall profit percentage limitation from all sales of the product line (controlled group optional method available).

Section B — 50/50 Combined Taxable Income Method:

  • Line 13: CTI from A-1 or A-2.
  • Line 14: 50% of CTI.
  • Line 15: 10% of allocable export promotion expenses.
  • Line 16: Sum of above.
  • Line 17: IC-DISC taxable income = lesser of CTI or Line 16.

Section C — 4% Gross Receipts Method (No marginal costing):

  • Line 18: Gross receipts (from Line 1).
  • Line 19: 4% of gross receipts.
  • Line 20: 10% of export promotion expenses.
  • Line 21: Sum.
  • Line 23: Lesser of Line 21 or CTI (Line 22).

Part II — Transfer Price From Related Supplier to IC-DISC (Buy/Sell)

  • Line 24: Gross receipts.
  • Line 25: Reductions (IC-DISC taxable income from Part I + allocable export promotion & other expenses).
  • Line 26: Transfer price = Line 24 – Line 25d.

This amount goes into Schedule A, Line 8 of Form 1120-IC-DISC.

Part III — IC-DISC Commission From Related Supplier (Commission Agent)

  • Line 27: IC-DISC taxable income from Part I.
  • Line 28: Allocable export promotion expenses.
  • Line 29: Other allocable IC-DISC expenses.
  • Line 30: Total commission = Sum of Lines 27–29.

Do not enter commission sales in Schedule A (Cost of Goods Sold) when using Part III.

Common Scenarios and Tips for Compliance

  • Buy/Sell Transactions: Use Part II.
  • Commission Agent: Use Part III and skip Schedule A entries for those sales.
  • Multiple Methods: You can use different methods for different products/product lines but must document consistently.
  • Marginal Costing Election: Only for 50/50 method on qualifying property sales.
  • Recordkeeping: Maintain detailed workpapers showing allocations of expenses and receipts. The IRS IC-DISC audit guide emphasizes tracing Schedule P back to books and records.
  • No Loss to Supplier: Always verify the final transfer price or commission does not create a loss for the related supplier.

Why Accurate Schedule P Filing Matters

Proper use of Schedule P maximizes the IC-DISC’s share of export profits (taxed at the shareholder level as qualified dividends) while deferring the interest charge on accumulated DISC income. Errors can trigger audits, adjustments, or loss of IC-DISC benefits.

Final Steps for Filing

  1. Complete one or more Schedule P forms as needed.
  2. Attach them after the last page of Form 1120-IC-DISC.
  3. File the full return by the due date (typically 15th day of the 10th month after year-end for calendar-year filers, with extensions available).

Disclaimer: This guide is for informational purposes only and is based on official IRS publications as of February 2026. Tax rules can change, and individual circumstances vary. Always consult a qualified tax professional or CPA familiar with IC-DISCs before filing.

For the most current forms and instructions, visit IRS.gov/Form1120ICDISC.

Sources:

  • Instructions for Form 1120-IC-DISC (Rev. December 2025), IRS.gov
  • Schedule P (Form 1120-IC-DISC) (Rev. September 2017), IRS.gov
  • IRC Sections 994, 482, and related regulations

Optimize your export tax strategy with confidence — proper handling of IRS Schedule P (Form 1120-IC-DISC) is essential for compliant and efficient IC-DISC operations. Bookmark this guide and the official IRS PDFs for quick reference during tax season.