The Interest Charge Domestic International Sales Corporation (IC-DISC) provides a tax savings for qualifying U.S. exporters. The IC-DISC is an entity which serves as a vehicle for export tax savings.
Under economic pressure from the World Trade Organization ("WTO"), Congress over the years has repealed various trade incentives. However, the IC-DISC, added to the Internal Revenue Code in 1984, has never been challenged by the WTO. Generally a somewhat lackluster tax deferral vehicle, the IC-DISC was revamped in 2004 under the Jobs and Growth Tax Relief Reconciliation Act by providing that dividends paid by it were eligible for a favorable tax rate.
How it works:
Owner of export company forms a tax-exempt IC-DISC in conformity with the Internal Revenue Code provisions.
Export company pays a 50% commission to the IC-DISC.
Commission is expensed by exporting company (the operating entity), reducing ordinary income.
IC-DISC is tax exempt and is not taxed on the commission income.
IC-DISC pays dividends to owner who is taxed at preferred rates upon distribution of dividend.