n-99-23.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III - Administrative, Procedural, and Miscellaneous
Revisions to Schedule P (Form 1120-FSC)
Notice 99-23
This notice effects interim revisions to Schedule P of Form 1120-FSC (1998)
filed by foreign sales corporations, and the instructions thereto. The Department of the
Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) also seek public
comments on certain proposed revisions to Schedule P for subsequent taxable years.
SECTION I. BACKGROUND
Schedule P, “Transfer Price or Commission,” of Form 1120-FSC, “U.S. Income
Tax Return of a Foreign Sales Corporation,” is used by foreign sales corporations
(FSCs) to compute the transfer price to charge a FSC or the commission to pay to a
FSC under the FSC administrative pricing rules of section 925 of the Internal Revenue
Code. The transfer price or commission is used to allocate between a FSC and its
related supplier foreign trading gross receipts from the sale of export property and
certain services.
Each transaction generating foreign trading gross receipts under the
administrative pricing rules is reportable on Schedule P. A FSC and its related supplier
may elect under Temp. Treas. Reg. § 1.925(a)-1T(c)(8) to group these transactions on
a product or product line basis and must make the election for each group on Schedule
P. Line B of Schedule P provides checkboxes for a FSC to indicate whether the
Schedule P is filed “Transaction-by-transaction” or with respect to a “Group of
transactions.”
For taxable years beginning before January 1, 1998, Line B of Schedule P also
contained a third checkbox labeled “Aggregate of transactions,” which represented an

- 2 -
additional option. Under this option, the instructions to Schedule P allowed the FSC to
combine on a single Schedule P transactions or groups of transactions based on
product or product line using the administrative pricing rules. In cases where such
aggregation was chosen, the instructions required the FSC and its related supplier to
maintain a supporting schedule for each transaction or group of transactions reported
in the aggregate form. For taxable years beginning before January 1, 1998, many
FSCs and their related suppliers chose to file Schedules P in the aggregate form.
For the 1998 version of Schedule P (“Schedule P (1998)”), the aggregation
option was eliminated. The purpose of the revision was to enable the Service to better
determine and identify on the face of the Schedule P (1998) the particular product or
product line for which the FSC was making a grouping election under the administrative
pricing rules.
The ability of the Service to identify elected groupings readily is increasingly
important in light of the amendments made to Temp. Treas. Reg. § 1.925(a)-1T(c)(8) by
T.D. 8764, 63 FR 10305, 1998-15 I.R.B. 9. Effective March 3, 1998, for taxable years
beginning after December 31, 1997, T.D. 8764 provides that an election to group
transactions based on product or product line must be made on a timely filed Schedule
P and cannot be changed thereafter. No untimely or amended returns will be allowed
to elect to group, to change a grouping basis, or to change from a grouping basis to a
transaction-by-transaction basis (collectively "grouping redeterminations"). For FSCs
reporting on a calendar-year basis, the temporary regulations as amended first apply to
returns due March 15, 1999, or, as extended, September 15, 1999.
Under a transition rule, the temporary regulations as amended also permit
grouping redeterminations with respect to taxable years beginning before January 1,
1998, provided such grouping redeterminations are made no later than the due date

- 3 -
(including extensions) for the FSC’s timely filed return for its first taxable year
beginning after December 31, 1997. Notice 99-24, page [INSERT PAGE NUMBER] of
this Bulletin, announces the intent of the Service in final regulations to extend the time
for filing under this transition rule to the due date of the FSC’s timely filed return
(including extensions) for the FSC’s first taxable year beginning on or after January 1,
1999. For FSCs reporting on a calendar-year basis, grouping redeterminations under
the transition rule in the final regulations will first be due March 15, 2000, or, as
extended, September 15, 2000.
Accordingly, the Service, FSCs, and their related suppliers now have a
heightened interest in clearly identifying groupings of transactions elected on Schedule
P of a timely filed FSC return.
During the filing season for 1998 FSC returns, several taxpayers, practitioners,
and Internal Revenue Service Centers have brought to the Service’s attention that an
increasing number of FSCs and their related suppliers are reporting their foreign
trading gross receipts on a transaction-by-transaction basis and that the removal of the
aggregation option, in requiring a Schedule P (1998) to be filed for each transaction,
has the effect of significantly increasing the paper and processing burden on both
taxpayers and the Service. Treasury and the Service have concluded that this
unintended increase in paper burden can and should be alleviated.
Beginning with the Schedule P (1998), the Service has decided to restore the
aggregation option contained in the 1997 version of the schedule. The aggregation
option shall remain available to taxpayers until the Service develops an appropriate
method for taxpayers to identify their grouping elections without creating an
unreasonable paper burden. This notice seeks public comments on a proposed
method to achieve this objective.

- 4 -
SECTION II. REVISIONS TO SCHEDULE P AND INSTRUCTIONS
For taxable years beginning on or after January 1, 1998, Schedule P may be
completed as if Line B included the same three checkboxes as appeared on the 1997
version of Schedule P except as otherwise provided in instructions to successor forms
Schedule P. Pursuant to the preceding sentence, FSCs may insert in Line B a
checkbox numbered “3" and labeled “Aggregate of transactions.” Instructions to such
checkbox are as follows:
3. Aggregate of transactions.--Check box 3 if the FSC combines its
transactions or group of transactions using the administrative pricing rules. File
one Schedule P if the FSC aggregates its transactions. Under this method, the
FSC and its related supplier must maintain a supporting schedule for each
transaction or group of transactions.
FSCs filing aggregate Schedules P in accordance with this paragraph should
enter "FILED UNDER NOTICE 99-23" across the top of the schedule.
SECTION III. REQUEST FOR COMMENTS
The Service is exploring alternatives for amending Schedule P and its
instructions to require FSCs to present all Schedule P information in the form of a
summary schedule in spreadsheet or similar format in lieu of filing a separate Schedule
P for each transaction or group of transactions. Exceptions to this requirement may be
provided in the case of small FSCs or those FSCs with de minimis amounts of foreign
trading gross receipts. Moreover, with respect to transactions that are not subject to an
election to group but rather are reported on a transaction-by-transaction basis, the
Service expects to permit a FSC, in lieu of filing a summary schedule for such
transactions, to aggregate on a single Schedule P those transactions within a product

- 5 -
or product line to which the same administrative pricing method is applied, provided
that a supporting schedule is maintained for each transaction.
Treasury and the Service invite public comments on these proposed changes to
Schedule P. Comments should be submitted in writing by June 30, 1999. Comments
may be mailed to:
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Attn: CC:CORP:T:R (Notice 99-23)
Room 5228
Washington, DC 20044
or may be hand-delivered between the hours of 6 a.m. and 5 p.m. to CC:DOM:CORP:R
(Notice 99-23), Courier’s Desk, Internal Revenue Building, 1111 Constitution Avenue,
N.W., Washington, D.C. Alternatively, comments may be submitted via the Internet at:
http://www.irs.ustreas.gov/prod/tax_regs/comments.htm1
The comments submitted will be available for public inspection and copying.
SECTION IV. DRAFTING INFORMATION
The principal author of this notice is Douglas Giblen of the Office of Associate
Chief Counsel (International). For further information regarding this notice, contact Mr.
Giblen at (202) 874-1490 (not a toll-free call).