Owner-managed exporting businesses can recoup – or even exceed – their tax savings by creating an interest charge-domestic international sales corporation (IC-DISC). The IC-DISC is not a tax shelter. Once a somewhat lackluster tax deferral vehicle, it was revamped under the Job and Growth Tax Relief Reconciliation Act of 2003. In its new form, the IC-DISC provides a permanent 10 to 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.
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 20%
- 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.
- Increased liquidity for shareholders or the business to redeploy in other areas
- Permanent tax savings on global sales
- Ability to leverage cost of capital
- Opportunities to create management incentives
- Means to facilitate succession or estate planning
What We Can Do For You
- Analyze the cost benefit of IC-DISC implementation
- Work with you to determine qualifications of export sales
- Use modeling software that allows us to help you achieve maximum benefit
- Calculate allocations and apportionment methodology to increase benefits
- Determine annual estimates and compliance requirements
To get the most out of an IC-DISC, including maximum tax savings, businesses should seek assistance from a qualified tax advisor with significant international tax and business planning experience. Freed Maxick is focused on mid-sized companies like yours. We understand your challenges and tailor our services to your needs – so you can get back to business. Call us today to learn about how our tax professionals can help you create an IC-DISC and to identify other innovative tax solutions.