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.

McGuire Sponsel, Ernst & Morris announce strategic merger

McGuire Sponsel identified an opportunity for a California-based plant that specializes in designing, manufacturing and installing farm equipment for different edible nut industries domestically and internationally. The S-Corporation had approximately $21.3 million in annual revenue, including about $6.5 million in international sales.

McGuire Sponsel identified a Tennessee-based hardwood manufacturer using the 4% of qualified export sales method to calculate its IC-DISC commission. The C Corporation had approximately $47 million in annual revenues, including $32 million in international sales.

An Interest Charge – Domestic International Sales Corporation “IC-DISC” provides a permanent tax savings opportunity for qualifying exporters.

This past December another federal Appellate court, the Court of Appeals for the Second Circuit, handed down one more victory for the Taxpayer. The court ruled in favor of the Berenson family and their Summa Holdings business, the cases in which federal Appeals Courts have been consistently reversing the Tax Court and the objectives of the IRS who have sought to limit the benefits of using IC-DISCs as shareholders of Roth IRAs.

Beginning in 2018, a NEW permanent tax benefit is available to exporting C corporations. The 2017 Tax Cuts and Jobs Act implemented the Foreign Derived Intangible Income (FDII) deduction, which applies a preferential C corporation tax rate to foreign income. Moreover, this new benefit is available in addition to any IC-DISC benefit already taken.

The new FDII Code section 250 has confused many CPA’s with its use of the term “intangible” income. However, the benefit is actually calculated based on export sales of tangible assets. The foreign income derived from this calculation is taxed at the new preferential rate, while the remaining income is deemed coming from intangible assets and taxed at the full 21%.

Although the calculation itself can be complex, the FDII tax benefit for C corporations renders only 62.5% of your export income taxable at the new, lower 21% corporate tax rate. Taxing only 62.5% of the export activity at a 21% rate produces an effective tax rate on export net income of only 13.125%, subject to limitations. In order to calculate this benefit, the following information is needed:

  • Annual transactional sales detail – both foreign and domestic
  • Detail should include data such as customer, invoice, quantity, price, cost, and destination
  •  P&L and Balance Sheet (net tax PP&E)
    In addition to our other services, please let us know if you have any clients that you think may benefit from taking advantage of this new benefit.