IC-DISC or Interest Charge Domestic International Sales Corporation
An Interest Charge Domestic International Sales Corporation, or IC-DISC, provides a permanent tax savings opportunity for qualifying U.S. exporters. An IC-DISC is not a tax shelter. It’s an incentive specifically provided by the tax code that allows U.S. exporters to increase their ability to compete globally by reducing U.S. tax liabilities. It is a paper entity designed solely for the purpose of realizing export tax savings.
How Does an IC-DISC Work?
An IC-DISC creates permanent tax savings by transferring income from the exporter to the tax exempt IC-DISC through an export sales commission. The IC-DISC commission payment reduces the exporter’s taxable income, thus reducing tax liability by the marginal tax rate of the commission amount. An IC-DISC commission is taxed at the qualified dividends rate only when distributed to shareholders as dividends. The transfer of income to the IC-DISC creates a permanent tax rate arbitrage on the export sales commission of 15 to 18 percent.
Benefits of an IC-DISC
Beyond tax reduction, an IC-DISC can be used to:
- Increase liquidity for shareholders or businesses.
- Supply ongoing ¬financing to reduce cost of capital. An IC-DISC is not required to distribute all commission income to shareholders. In some cases, income can be loaned back to the exporter creating tax deferment and working capital.
- Create management and employee incentives for IC-DISC shareholders.
- Create a tax-advantaged vehicle for succession or estate planning. Income can be transferred to the IC-DISC tax free and then distributed in a tax-advantaged manner to shareholders. The distribution can provide funding for buyouts, or create a vehicle to transfer wealth at reduced effective tax rates.
- Eliminate double taxation for C-Corporations and defer taxes.
How McGuire Sponsel can Help
Companies based in the U.S. that regularly export products, can realize substantial tax savings by forming an Interest Charge Domestic International Sales Corporation. McGuire Sponsel’s approach is designed to minimize the filing and maintenance burdens for our clients while maximizing commissions and tax savings. We evaluate all commission alternatives on an annual basis, including performing a detailed transaction-by-transaction analysis. Choosing the optimal methodology and performing a detailed annual analysis will ensure maximum savings.
Additional IC-DISC Resources
When closely-held C corporations utilize an Interest Charge – Domestic International Sales Corporation (“IC-DISC”), it is fairly common to deal with deferred DISC income. This occurs when the IC-DISC chooses not to distribute income to its shareholder(s) but instead, retain […] Read More
In many introductory discussions with potential IC-DISC clients, a common topic is whether indirect export sales qualify. In many cases, companies do not directly export products themselves; instead they may use a distributor, freight forwarder or another type of U.S. […] Read More
In the world of accounting, the close of a company’s tax year inevitably sends people into a scramble. The calculation of the IC-DISC commission expense seems to add to the chaos; however, being familiar with the IC-DISC’s 60-day rule and […] Read More