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IC-DISC

IC DISC whitepaper IC DISCCongress has repealed many of the historical foreign-trade incentives, leaving very few permanent tax savings opportunities for owner-managed exporting business in the U.S. However, there is good news for these exporting businesses.

A historically lackluster tax deferral vehicle, the IC-DISC (introduced by Congress in 1984) has gained some punch as a tax savings vehicle. The benefit of the IC-DISC is born in the difference between the top individual tax rate of 39.6% and the favorable dividend tax rules, depending on your taxable income. In its new form, the IC-DISC can provide a permanent tax savings of up to 20 percent for qualifying U.S. exporters.

The IC-DISC Structure
The IC-DISC is a relatively simple structure to implement. The IC-DISC is a “paper” entity and therefore does not require corporate substance or form, office space, employees or tangible assets. It simply serves as a conduit for export tax savings. Companies that qualify for this tax savings conduit are Manufacturers, Distributors, Software Companies, and Engineering and Architectural firms that work on buildings/structures in foreign locations.

An important feature of the IC-DISC is that shareholders can be corporations, partnerships, individuals or a combination of these.

How It Works

  • Owner-managed exporting entity creates a tax-exempt IC-DISC
  • Exporting entity pays IC-DISC a commission
  • Exporting entity deducts commission from ordinary income which could be taxed at up to 39.6%
  • IC-DISC pays no tax on the commission
  • Shareholders pay income tax on dividends at the capital gains rate of 15%
  • Result is 20% tax savings on commission

IC-DISC Advantage and Benefits
IC-DISC shareholdings can be used in a number of ways to help achieve business goals and objectives.

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

What We Can Do For You

  • We will analyze the cost benefit of IC-Disc implementation
  • We work with you to determine qualifications of export sales
  • Freed uses modeling software that allows us to help you achieve maximum benefit
  • Calculate allocations and apportionment methodology to increase benefits
  • We determine annual estimates and compliance requirements

 

IC-DISC Tax Savings: What an IC-DISC can do for your business
Check out: An Example by the Numbers

Related Links
Canadian | U.S. Tax Compliance | Cross Border
Expatriate Consulting Services
Expatriate Tax Planning
Foreign Bank Account Reporting | FBAR
IC-DISC
International Corporate Tax Services
International Tax Compliance
International Tax Structuring
Passive Foreign Investment Company | PFIC | Services
Transfer Pricing Studies | Analysis
U.S. Tax Services for Canadians

CONTACT US to learn more about our Tax Services.

ABOUT US: Freed Maxick CPAs is Western and Upstate New York’s (NY) largest public accounting firm and a Top 100 firm in the U.S. Freed Maxick provides audit, tax and consulting services to closely-held businesses, public (SEC) companies, not-for-profits and governmental entities in Buffalo, Rochester, Syracuse, Albany and NYC, New York.


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