What Is An IC-DISC?

The Interest Charge Domestic International Sales Corporation (IC-DISC) provides a 20% 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Under economic pressure from the World Trade Organization ("WTO"), Congress over the years has repealed various trade incentives.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 15% tax rate. On May 17, 2006, the President signed into law the Tax Increase Prevention and Reconciliation Act of 2005 (H.R. 4297), which extends this 15% rate through 2010, now making this planning especially exciting.

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 0%-15% upon distribution of dividend.

 

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Tax Solutions for the Export Market