1. R.A. Bianchi & Associates, Inc.
a Professional Accountancy Corporation
21900 Burbank Blvd., Suite 200 Woodland Hills, CA 91368 (818)528-7225
Certified Public Accountants

2. Industry Concentrations
Healthcare
News & Journalism
Media
Construction
Manufacturing
Real Estate
Specialty Services
Research & Development Tax Credits
Domestic Production Activities Deduction
Transfer Pricing
IC-DISC
Foreign Bank Account Report (FBAR)
Table of Contents
3
3
3
4
4
4
5
6
7
8
12

3. Media
Healthcare
News & Journalism
We are leaders and innovators in news syndicate, broadcasting, graphic design and marketing and
advertising accounting and taxation. Our firm services multiple multinational corporations as well
as numerous foreign and domestic individuals ranging from journalists, authors, photographers and
actors. For example, Insight News & Features, Inc. (INF) is a celebrity entertainment news agency, lo-
cated in New York, specializing in celebrity photography and news. INF faces many challenges in the
news and photography environment such as multiple agents operating and living all over the country
and the world, coupled with numerous foreign sales and transactions. Our firm guided INF through
the difficult terrain of foreign markets and transactions by utilizing Foreign Bank Account Reporting
(FBAR) and foreign tax credits. INF is now reaping all the benefits of a flexible and global business.
Healthcareisaprofitableyetcomplexindustry.RABianchi&Associateshasbeenhelpingourphysicianand
pharmaceuticalclientsnavigatethehealthcaremarketssuccessfullyforyears.OnesuchclientisVitalab,Inc.
Vitalab is a compounding pharmacy based in Phoenix, Arizona. With state of the art technology and an
innovativeworkforce,Vitalab,Incisonthecuttingedgeofthepharmaceuticalindustry.Ourfirmhashelped
Vitalab, Inc. utilize research and development credits, for not only employees but for developmental equip-
ment and processes as well. Through these credits, Vitalab, Inc. has not only decreased their tax liability but
also increased their research investment, which in turn will yield more innovative products to the market.
Soap, LLC is a media based client that we have consulted on international tax issues. Soap, LLC is an Austra-
lian graphic design firm providing high tech graphic designs for news and advertising firms. When Soap,
LLC was outsourcing work from their US affiliate company, Soap USA, to the Australian parent company,
they needed a contract to protect them from possible tax penalties. They engaged RA Bianchi and Associ-
ates. We assisted them in drafting a transfer price agreement, which allowed Soap, LLC to legally conduct
intercompany transactions from the Australian company to the US affiliate, while in compliance with both
Australian and US Tax codes and in accordance with International Tax Treaties. This agreement now pro-
tects Soap, LLC from both the Australian and US taxing authorities’ governments claiming illegal shifting of
profits to low tax jurisdictions, which is subject to penalties of 20% to 40% of the valuation of misstatement.
3

4. Manufacturing
Real Estate
Construction
US Manufacturing Firms face some of the toughest competition and tightest margins of any industry
but RA Bianchi and Associates makes sure that our manufacturing clients take advantage of every op-
portunity possible to ensure success. ALCO Designs is one such client, who uses our knowledge and
forward thinking to stay ahead of the market. ALCO Designs manufactures and distributes wooden,
plastic and steel meat and produce displays for supermarkets both here in the US and abroad. We
have given ALCO Designs the upper hand by creating an affiliated Interest Charge- Domestic Interna-
tional Sales Corporation (IC-DISC), which allows for a portion of foreign profits to be taxed at the 15%
dividend tax rate. Our firm also took advantage of the new hire tax credits, research and development
tax credits and domestic production activity deductions, which were all available to ALCO Designs.
RABianchistillbelievesthatwithasoundpractices,strongvaluationmethodsandpatiencerealestatecanbe
a profitable market. RA Bianchi and Associates guides clients to focus on the profitable aspects of property
management and real estate holdings. The Equity Options partnership, which is three real estate holding
companies with multiple partners in each, is a great example of this. In this tough time, we have assisted Eq-
uity Options with consulting, audit and tax services for their five commercial real estate buildings exceeding
500,000 square feet in Houston, Texas. Additionally, we have preformed a full audit in accordance with
GAAS(GenerallyAcceptedAuditingStandards)andaccountingstrategies,throughnumerousonsitevisits.
RA Bianchi and Associates brings immense knowledge and guidance to our construction clients in a
turbulent time. With Robert’s hands on field experience and our staff’s construction accounting and
taxation background, we have assisted our clients capitalize on their opportunities. One such client
is West Coast Storm, Inc, which fabricates, installs and maintains state of the art storm drain covers.
West Coast Storm income relies heavily on large municipal contracts. RA Bianchi and Associates have
provided consulting on revenue recognition based on percent of completion and short term contract
obligations. We have also assisted in supporting database installs, arranging for financing, contact
consultation, cost segregation and allocation and bookkeeping. Using these support mechanisms we
provide, West Coast Storm now has multiple contracts with some of California’s largest municipalities.
4

5. Research & Development Tax Credits
WHAT R&D ACTIVITIES QUALIFY?
innovative products or processes
• Patent development
• Software development
• Design and engineering staff
• Prototyping, modeling, and trial-and-error testing
The costs of these activities, qualified expenditures include wages, supplies consumed in the
R&D process, and subcontractors—may fail under federal research tax credits. According to
IRS Code, Section 41, the most the federal credit can be is 6.5% of qualified R&D expenditures.
The Federal Research Tax Credit is an effective, but often underutilized, means of lowering your com-
pany’s tax burden. Tax credits provide tax relief by providing a dollar amount that is subtracted from
your taxes, thereby resulting in fewer tax dollars being paid out.
Established by Congress in 1981, the Research Tax Credit was originally designed to help the United
States stay abreast of Japan and Germany in the technology race. The new tax credit was intended
to spur innovation and encourage U.S. companies to invest in the future by providing an incentive
for them to spend more money on research and development. In 2004, regulations were passed that
made the Research Tax Credit substantially easier to quality for.
Today, the Research Tax Credit returns more than $5 billion a year to U.S. companies. Approximately
80 percent of the money goes to only a few of the nation’s largest companies, but many other suc-
cessful businesses are engaged in activities every day that could make them eligible for a research tax
credit.
Many companies are unaware that their day-to-day operations may qualify for Re-
search Tax Credits, which can provide a steady source of extra cash. If your company de-
votes time and resources to any of the following, you may qualify for Research Tax Credits:
Mention R&D to most people and they immediately think of a laboratory full of scientists wearing
white coats and working in the biotech or pharmaceutical industries. Yet companies in many other
industries, including the electronics industry, routinely do work that qualifies for significant research
tax credits as they attempt to create a product that is more reliable, durable, and has higher pre-
cision and accuracy. Other companies invest significant resources to design and build parts and
equipment according to customer specifications, while assuming the risk should they fail to deliver.
RD
?
5

6. Domestic Production Activities Deduction
Qualified Production Activities
General Rule and Safe Harbor
Here’s the basics:
Businesses with “qualified production activities” can take a tax deduction of 6% from net in-
come. This is a tax break pure and simple. The more complicated the business, the more com-
plicated the math for calculating the Domestic Production Activities Deduction. In a nutshell,
businesses engaged in manufacturing and other qualified production activities will need to im-
plement cost accounting mechanisms to make sure their tax deduction is accurately calculated.
Section 199 Deduction
Domestic Activities Deduction
In the 2009 tax year, certain companies can take a 6% deduction for US-based business activities.
“Every small business is the manufacturing industry should be looking at this as a tax deduction. While Sec-
tion 199 comes with a very complex set of rules, chances are small businesses will qualify for the deduction
much easier than the rules depict.”
A business engaged in a qualified production activity is eligible to take a tax de-
duction of 6% in tax years 2009. The deduction increases to 9% in year 2010.
A business engaged in the following lines of business may qualify for the Domestic Production Activi-
ties Deduction. These are the “qualified production activities” eligible for claiming the deduction under
Internal Revenue Code Section 199:
The Domestic Production Activities Deduction is limited to income arising from qualified produc-
tion activities in whole or significant part based in the United States. Under a “safe harbor” rule
(IRS Proposed Regulations 1.199.3.f.3), businesses can take the deduction if at least 20 per-
cent of the total costs are the result of direct labor and overhead costs from US-based operations.
If any part of manufacturing or production activities is outside the United States, then busi-
nesses must use either the safe harbor rule (at least 20% of total costs are from US-based
production activities) or allocate costs using the facts and circumstances of their business.
• Manufacturing based in the U.S,
• Selling, leasing, or licensing items that have been manufactured in the U.S,
• Selling, leasing, or licensing motion pictures that have been produced in the US,
• Construction in the U.S, including building and renovation of residential
and commercial properties,
• Engineering and architectural services relating to a US-baseD construction project,
• Software development in the U.S, including the development of video games.
!
6

7. TRANSFER PRICING
$
B B
7
The United States tax law on transfer pricing is contained in Section 482 of the Internal Revenue Code.
In part, this section states:
“In any case of two or more organizations, trades, or businesses... owned or controlled directly or
indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income,
deductions, credits, or allowances between or among such organizations, trades, or businesses, if he
determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion
of taxes or clearly to reflect the income of any of such organizations, trades, or businesses.”
In 1934, the IRS published regulations that established the arm’s-length standard as the applicable
guidelines for evaluating transactions between controlled parties. The basic premise behind this stan-
dard was that the pricing under review must be consistent with the pricing that would have been under-
taken if unrelated parties had engaged in the same transaction under the same circumstances.
These regulations remained unchanged until new ones were issued in 1968, which provided guidance
and set forth the methodologies that should be employed when establishing an arm’s-length price for the
rendition of services, the transfer of tangible goods, the license of intangible property, and related party
loans. The 1968 regulations are noted for a number of important concepts, which include the creation
of a strict hierarchy of testing methodologies for evaluating the arm’s-length price of tangible goods.
In 1992, the IRS issued proposal regulations that would have substantially modified the 1968 regula-
tions. However, due to the negative comments put forth by the taxpayer community, these regulations
were withdrawn. Newly revised temporary and proposed regulations were issued in 1993. Based on
these, in 1994, final regulations were issued. These regulations remain in place to this day without
substantive changes.
The 1994 regulations provide guidance on how taxpayers can implement the concepts outlined in Sec-
tion 482. They specify how taxpayers should price their controlled transactions to ensure that the trans-
actions meet the arm’s-length standard. To this end, the regulations provide a number of methodologies,
which can be used to test whether a controlled transaction has been conducted at arm’s- length. Each
method differs in its analysis technique. The selection and employment of a methodology is primarily
dependent on the type of property being transferred (tangible, intangible or service), the financial data
that is available, and the levels of comparability between the controlled transaction under review and

8. PENALTY REGULATIONS
In 1996, the IRS issued final penalty regulations under IRC Sections 6662(e), 6662(h), and 6664(c) to
encourage taxpayer compliance with the Section 482 transfer pricing regulations. Under this regulatory
scheme, if the IRS makes an adjustment to a taxpayer’s tax liability pursuant to Section 482, and this
adjustment exceeds certain benchmarks, 20% or 40% penalties can be imposed on top of the valuation
misstatement (for “substantial” or “gross” misstatements, respectively).
A penalty for a “substantial” or “gross” valuation misstatement can be imposed in two situations. The
first, the transactional penalty, occurs when there is a misstatement of a transfer price relative to a single
controlled transaction. The second, the net adjustment penalty, takes into account the misstatement at-
tributable to all of the controlled transactions undertaken by a taxpayer in a given taxable year. While
a taxpayer may be eligible for both a transactional and a net adjustment penalty, only one can be
imposed with respect to a transaction. Taxpayers can avoid these penalties by meeting the reasonable
cause and good faith exception found in Sections 6662(e) and 6662(h). For this exception to apply to
the net adjustment penalty, the taxpayer must also satisfy extremely stringent regulatory requirements.
In many instances, it is possible to apply more than one methodology to the same transaction, with
each providing a different result. The regulations state that the method that provides the most reliable
result (i.e., the “best method”) should be employed. To establish which method should be applied to the
transaction, the regulations employ the Best Method Rule. The Best Method is defined as the methodol-
ogy that provides the most reliable measure of an arm’s-length result under the facts and circumstances
of the controlled transaction under review. Thus, there is no strict priority of methods, and no method
will always be considered to be more reliable than others. An arm’s-length result may be determined
without disproving other applicable methodologies. However, if another method is subsequently shown
to provide a more reliable result, this other method must be used.
Finally, the regulations no longer subscribe to the notion that there can only be one correct price for a
controlled transaction. Sometimes applying a particular method will produce a number of results from
which a range of reliable prices may be derived. This range (i.e. the arm’s-length range) is a set of
points, with each point corresponding to a financial data item such as the unit price or gross margin
associated with a comparable uncontrolled transaction (if a transactional methodology is being used) or
a comparable uncontrolled taxpayer (if a profit based methodology is being used). If the price or profit-
ability of the controlled transaction or the profitability of the controlled taxpayer falls within this range,
then the IRS will not make an adjustment to the price of the controlled transaction under review. The
arm’s-length range is ordinarily determined by applying a single method selected under the Best Method
Rule to two or more uncontrolled transactions or taxpayers of similar comparability and reliability.
8

9. IC-DISC advantages and benefits
Why an IC-DISC is a smart choice now
INTREST CHARGe
DOMESTIC INTERNATIONAL SALES CORPORATION
The IC-DISC is not a tax shelter. Once a somewhat lackluster tax deferral vehicle, it was revamped last
July by favorable dividend tax rules prescribed under the Jobs and Growth Tax Relief Reconciliation Act
of 2003.
In its new form, the IC-DISC provides a permanent 20 percent tax savings for qualifying U.S. exporters.
It also has a number of sophisticated features that can be tailored to help businesses meet objectives
and goals.
In addition to other attributes, the IC-DISC has better staying power than its predecessors. U.S.
trading partners decried the legitimacy of both the foreign sales corporation and the ETI exclu-
sion. But the IC-DISC, which was added to the tax code in 1984, has never been challenged.
For U.S. exporters, the IC-DISC may soon be the only remaining tax-savings opportunity. But
fortunately, it’s better than ever — and a smart choice for your business.
The IC-DISC is a “paper” entity utilized as a tax-savings vehicle. It does not require corporate
substance or form, office space, employees or tangible assets. It simply serves
as a conduit for export tax savings.
An important feature of the IC-DISC is that shareholders can be corporations, individuals or a
combination of these.
IC-DISC shareholdings can be used in a number of
ways to help achieve business goals and objectives.
Some of the advantages and benefits provided by an
IC-DISC are described below.
•Owner-managed exporting company creates a
tax-exempt IC-DISC
•Exporting company pays IC-DISC a commission
•Exporting company deducts commission from
ordinary income taxed at 35 percent
•IC-DISC pays no tax on the commission
•Shareholders pay income tax on dividends at
the capital gains rate of 15 percent
•Result is 20 percent tax savings on commission
• Permanent tax savings on global sales
• Increased liquidity for shareholders or the business
• Ability to leverage cost of capital
• Opportunities to create management incentives
• Means to facilitate succession or estate planning
The IC-DISC structure
How an IC-DISC works What an IC-DISC can do for
your business
9

10. Permanent tax savings on global sales
Increased liquidity for shareholders or the business
Permanent tax savings begins with the exporting company deducting the commission it pays to the IC-
DISC from its ordinary income, which is taxed at 35 percent. Tax law sets
the commission rate, which is based on export sales revenue, as the greater of either 50 percent of net
income or 4 percent of gross income.
Because the IC-DISC is tax exempt, tax is paid only on distributions to shareholders. Individual and pass-
through company shareholders pay income tax on dividends at the capital gains rate of 15 percent.
Shareholders who need to rebalance their investment risk profiles can, in most cases, use the IC-DISC to
gain additional liquidity. By extracting cash in this tax-
advantaged manner, they can deploy resources pursuant to their investment risk profiles.
IC-DISC liquidity also provides a tool for combating lending and debt restrictions that inhibit diversifi-
cation and risk management. Rather than being reined in by restrictions, such as salary and dividend
limitations and debt covenants, shareholders have flexibility to take actions that serve the best interests
of the business.
The following example illustrates how
a 20 percent tax rate arbitrage creates
a permanent tax benefit of $160,000 on a
commission of $800,000:
Foreign trading gross receipts 20,000,000
Cost of goods sold (16,000,000)
Gross Margin 4,000,000
Selling, general and administrative costs (3,000,000)
Export sales net income 1,000,000
IC-DISC commission (greater of):
50% of export net income 500,000
4% of export gross receipts 800,000
IC-DISC commission 800,000
Federal tax savings (35%) 280,000
IC-DISC dividend 800,000
Federal tax cost (15%) (120,000)
IC-DISC net tax savings 160,000
10

11. Ability to leverage cost of capital
An IC-DISC is more than a tax-savings vehicle. It can also be used as a deferral tool to leverage a
company’s cost of capital. IC-DISC earnings need not be distributed to share-holders; they can instead
be used to perpetuate and grow the deductible dividend tax-rate savings. Tax-rate savings is perpetu-
ated by lending accumulated IC-DISC earnings back to the exporting company in return for a note and
interest. The exporting company can deduct the interest expense, and interest income is considered a
dividend to the IC-DISC shareholders. Reinvesting IC-DISC earnings back into the exporting business
results in additional tax-rate savings and diminishes the group’s cost of capital.
In the following example, reinvestment of
IC-DISC earnings in the form of a loan back
to the exporting company decreases the
cost of capital to the group.
Foreign trading gross receipts 20,000,000
Cost of goods sold (16,000,000)
Gross Margin 4,000,000
Selling, general and administrative costs (3,000,000)
Export sales net income 1,000,000
IC-DISC commission (greater of):
50% of export net income 500,000
4% of export gross receipts 800,000
IC-DISC commission 800,000
Annual loan interest deduction (5%) 40,000
Federal tax savings (35%) 14,000
IC-DISC dividend 40,000
Federal tax cost (15%) (6,000)
IC-DISC net tax savings 8,000
Net cost of capital ($800,000 loan) 4.00%
Opportunities to create management incentives
Businesses can use ownership in the IC-DISC to provide incentives. Exporting company management
and other personnel can be named shareholders — allowing them to benefit from additional cash flow
created by increasing global sales.
11

12. FBAR Reporting
Means to facilitate succession planning
An IC-DISC offers a number of capabilities for executing a succession plan. Among these, ownership in
the IC-DISC can be used as a means of generating cash, which can be distributed to shareholders in a
tax-advantaged manner. IC-DISC shareholders participating in a buyout of current or previous share-
holders can leverage these tax-advantaged IC-DISC earnings to pursue the buyout plan.
TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), must be filed by U.S. persons
having a financial interest in or signature authority or other authority over any financial account in a
foreign country if the aggregate value of these accounts exceeds $10,000 at any time during the cal-
endar year.
June 30 is the deadline for filing the 2010 tax year.
12