Last week we started defining qualified export property. You can find this article at: What is qualified export property? Today, we turn our focus to drilling down on the definition of qualified export property and understanding the 50-percent test and fair market value.
Foreign content and the 50% of fair market value test on an export property.
Under Internal Revenue Code Regulation Section, 1.993(e)(1), articles imported into the United States are referred to as “foreign content.” In order for export property to qualify for IC-DISC treatment, no more than 50 percent of the fair market value of the property may be attributable to foreign content.
So how do we apply or measure the fair market value of the foreign content?
Under Regulations Section 1.993(e)(4), the valuation of imported articles (foreign content) are determined at the time the articles were imported into the United States at their appraised value as determined under section 402 of the Tariff Act of 1930 in connection with their importation.
Simply, the fair market value is the fully dutiable value (or full purchase price) of the imported articles.
Evidence & Documentation
How does one document fair market value under these rules? Ideally, the customs invoice that is provided upon importation would be acceptable. In some cases, however, these documents may not be available or transferred to the holder of the imported articles. In these cases, the Regulations place the burden of proof on the holder of the property to establish that no more than 50 percent of the fair market value of the export property is attributable foreign content (or imported articles) (Reg 1.993(e)(4)(ii).
In our next article on IC-DISC Basics
Next week we will look at producer loans; what are they? How are they structured? What impact does it have for the owners of the IC DISC?…..See you next week?
What say you, my friends?
Do you calculate the FMV of any imported articles as part of your products?
Have you looked at the R&D tax credit for products you design and manufacture?
Do you use forklifts or natural gas vehicles in your business?
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Randy Eickhoff, CPA is President of Acena Consulting. With more than 20 years of tax and consulting experience, Randy focused on helping companies successfully document and secure tax incentives throughout the US. He has been a long-time speaker nationally as well as conducted numerous training sessions on R&D tax credits and other US tax incentives.