McGuire Sponsel identified an opportunity for a Kentucky-based company that machines automotive and heavy truck parts. The LLC had approximately $5.5 million in annual revenue, including about $2.6 million in international sales.
For the manufacturer’s sales to qualify for the IC-DISC, no more than 50% of the fair market value of the export property can be attributable to imported content. This client manufactures small, specialized parts such as cylinders, O-rings, and seals made from primarily domestic raw materials, satisfying the foreign content test. Its operations include drilling, turning, boring, milling, reaming, and 4th axis machining, fully satisfying the manufacturing/production test which requires that at least 20% of the total cost of goods sold to be labor and factory burden. Similar to other companies in the automotive component industry, the company sells the finished parts in bulk directly to car manufacturers and other businesses in foreign countries including Mexico and Canada, passing the destination test and qualifying the sales for the IC-DISC. No further manufacturing takes place before the sale, and the product is exported within 12 months.
McGuire Sponsel adds value to the allowable commission by utilizing a Transaction-by-Transaction approach. Choosing the optimal methodology and performing a detailed annual analysis will ensure maximum savings.
McGuire Sponsel analyzed the LLC’s sales detail and financials to produce a commission of nearly $350,000. In 2017, this resulted in over $55,000 in tax savings passed on to the LLC. After a lower arbitrage between marginal and capital gains rates caused by new tax regulation, the client would still see a tax savings of over $20,000.