Critical Path Decision

On March 2, 1998, the Internal Revenue Service released the most dramatic and far-reaching Foreign Sales Corporation (FSC) Regulations in over a decade. As you are probably aware, these regulations (which are effective for the FSC's first taxable year beginning after December 31, 1997), require each FSC to elect its transaction grouping method on its initially filed return. This means that the decision to calculate the FSC benefit using a transaction-by-transaction approach or a higher level approach must be made on the first Form 1120 FSC; the decision cannot be changed on an amended Form 1120 FSC.

Additionally, all amended FSC tax returns for years beginning prior to January 1, 1998 that involve changing to transaction-by-transaction or changing grouping strategies must be completed by no later than the extended due date for filing the 1998 FSC return.

The Facts

These developments put tremendous pressure on all FSC tax management resources within the company. There may be many projects which have a higher perceived value than FSC tax returns. However, most companies with large FSC operations and a sizable FSC tax return preparation effort need to address the following, even if these regulations are relaxed:

  • Determining if the transaction-by-transaction benefits justify the effort.
  • Amending FSC returns prior to September 15, 1998 (or a subsequent revised regulatory date).
  • Streamlining current year FSC return processing.
  • Providing accountability for maximizing FSC benefits.
  • Controlling the FSC calculation to control tax risk.

As a tax management executive looking at available resources to address the FSC area, you may find that:

  • You hired your team for their tax skills, not to be data managers.
  • The company is in the midst of a major systems change; no information technology people are available to assist with a transaction-by-transaction calculation.
  • More than ever, you need an efficient approach to the FSC that takes a minimum of tax department time.
  • Flexible fee arrangements are highly desirable, given pressures on your budget.

Ultimately, you realize you need help. You've heard all the claims by the experts, but just want a straightforward and transparent solution. We will work with you at the level you desire to provide the most complete solution available, without selling you more than you need.

Defining Your Specific Needs

Organizations will have varied FSC needs depending upon whether or not exporting activities are new or established. We can help with:

  • FSC Organization/Reorganization
  • FSC Optimization Services (current year tax returns)
  • Redetermination Services (amended FSC returns)
  • Foreign Economic Processes Compliance Documentation
  • Transactional Pricing Studies
  • Audit Defense Services
  • Litigation Support
  • Comprehensive Consulting Services
  • AACTS-FSC Software Licensing

}Superior FSC management will focus on the entire process -- from employing appropriate economic processes to FSC pricing, planning, filing the return, and improving the overall process.


Serious Software

Arthur Andersen Technology Solutions (AATS) develops, maintains, markets and supports a comprehensive line of business software products designed to enhance business performance. AATS integrates and deploys new technologies through nearly 800 professionals located throughout the world.

A subset of AATS is AA Compliance Technology Solutions (AACTS), which focuses specifically on software solutions for the tax industry. The AACTS - FSC Compliance System (AACTS-FSC) is a software solution resulting from the collaborative efforts of our International Tax Services Group, our Washington D.C.-based Office of Federal Tax Services (OFTS), and our AACTS group. In order to ensure that we developed a comprehensive system which would address critical FSC issues, we also worked with several major exporters during the development process.

AACTS-FSC provides state-of-the-art technology through an easy-to-use graphical interface. It is a 32-bit Windows-based, client/server solution. Use of advanced technology allows AACTS-FSC to utilize sophisticated memory management features and to handle the complex calculations necessary to maximize FSC benefits efficiently and effectively. AACTS-FSC is built on an open relational database engine which allows any data element stored in the database to be extracted to build custom reports or to move data to a spreadsheet or other application.

Key Software Benefits Include...

  • Supports bottom-up transactional pricing.
  • Produces self-contained/complete audit trail.
  • Provides standard and user-defined reports.
  • Accepts data from variety of formats (e.g., spreadsheets, mainframe general ledger, subsidiary sales ledger, etc.).
  • Processes high transaction volumes of detail.
  • Supports quick set up of product groups.
  • Provides flexibility in adding, deleting, or moving groups, product lines or products once initial groupings are established.
  • Examines/supports numerous apportionment scenarios.
  • Uses Alternative Grouping Algorithm to suggest the most profitable product grouping.
  • Supports Schedule M-1 and AMT Adjustments; supports R&D expense allocations based on SIC codes.
  • Supports Form 1120 FSC and Schedule P's fully.
  • Includes toll-free customer support.

We can provide you with either complete FSC Services or an AACTS-FSC software license; thus, we are in the best position to address specifically what you need.

Ultimately, Arthur Andersen provides the most all-inclusive solution available in the marketplace. Extensive experience. State-of-the-art methodology and software. Unsurpassed solutions -- bar none.

For further information, please contact Click Contact Link or Click Contact Link .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.