IC-DISC Exporter Tax Incentives | St Louis International Tax Planning

News Tax Tax Planning and Compliance Manufacturing and Distribution

IRS offers large tax incentives for manufacturers who export their product internationally. An Interest-Charge Domestic International Sales Corporation (IC-DISC) is a separate corporation which acts as a sales commission agent for the exporting entity. The election must be made within 90 days of its first taxable year by filing IRS Form 4876-A. It is categorized as a domestic C corporation that is tax-exempt from federal income tax purposes.

IC-DISC Qualification

To qualify as an IC-DISC you must meet the following tests:

At least 95% of its gross receipts during the tax year are qualified export receipts.
At the end of the tax year, the adjusted basis of its qualified export assets is at least 95% of the sum of the adjusted basis of all its assets.
It has only one class of stock, and its outstanding stock has a par or stated value of at least $2,500 on each day of the tax year.
It maintains separate books and records.
It is not a member of any controlled group of which a foreign sales corporation (FSC) is a member.
Its tax year must conform to the tax year of the principal shareholder who has the highest percentage of voting power.
Its election to be treated as an IC-DISC is in effect for the tax year.

Typically ownership is held by the pass-through entity for greatest tax benefit. The parent company pays a commission to the IC-DISC and deducts this commission from its ordinary business income. This results in a deduction at ordinary tax rates, with the current highest bracket of 39.6% in tax savings. The IC-DISC receives the commission as income, but does not pay federal taxes since it is a tax-exempt organization. The IC-DISC then distributes this cash as a dividend to its shareholders. The dividend is taxed at the qualified dividend rate, with the current highest rate being 23.8% including the additional net investment income surtax. This results in a net permanent 15.8% tax savings (39.6% tax savings – 23.8% tax costs). The IC-DISC may also choose not to pay a dividend to its shareholders. In this scenario an interest charge would apply to the deferred tax which is where the IC-DISC received its name.

Contact an Anders advisor to determine your potential tax savings.

Our firm provides this information for general educational guidance only and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Podcasts posted by Anders CPAs + Advisors are not intended to be used and cannot be used by any individual or business, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Please note that some content may be generated using artificial intelligence and is intended for educational and informational purposes only. In no way does listening, reading, emailing or interacting on social media with our content establish a professional relationship.

All Insights