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.
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
McGuire Sponsel has discussed the IC-DISCs year-end planning topics with clients in our webinars and news articles. To summarize, once an IC-DISC is established by making the proper IC-DISC election, a company may begin claiming the IC-DISC benefit. The IRS […] Read More
The Importance of identifying international sales in 2018 For exporting companies, this is the perfect time to examine whether or not it would be beneficial to establish an Interest Charge – Domestic International Sales Corporation (IC-DISC). Given the prospective nature […] Read More