Insights: Article

IC-DISC Export Tax Incentive

By   Mark Griswold

January 26, 2017

IC-DISC Tax Incentives for U.S. Manufacturers that Export
Currently, more than 6,000 small and medium-size exporters are taking advantage of the tax incentives offered by the United States government through a vehicle known commonly as the IC-DISC. The White House and Congress both agree that a key to our nation’s economic recovery is to encourage our manufacturing sector to export. This tax incentive allows U.S.-based exporters to better compete in the world economy, especially in light of the World Trade Organization’s (“WTO”) economic pressure on trade incentives. The tax incentives are created to strengthen an export company and allow them to compete for export sales.

What is an IC-DISC?
An Interest Charge Domestic International Sales Corporation (IC-DISC) is an export incentive provided by the U.S. tax code that allows permanent tax savings  opportunities for qualifying U.S. exporters of goods or services. Goods must be manufactured in the U.S. or have substantial U.S. cost embedded, and a separate legal entity is required, but no substantive business operations.

How It Works
The shareholder or operating company (OpCo) establishes a corporation and makes an IC-DISC election. The OpCo pays a commission to an IC-DISC based on their export sales, with the deduction at ordinary income tax rates. An IC-DISC makes a dividend distribution of the commission, and is taxed at dividend income tax rates. There are also alternative structures, and the IC-DISC can be used as a wealth transfer tool.

The Technicalities
The commission is calculated based on the greater of 50% of Export Net Income, or 4% of Export Gross Receipts. Transaction-by-transaction analysis allows for the greatest commission calculation. Dividends from an IC-DISC must be made within one year; otherwise, an “Interest Charge” is applied.

Our Services
Eide Bailly offers a variety of compliance and advisory services related to the IC-DISC. In addition to our compliance and advisory services, we have helped clients from start to finish in developing the separate legal entity required for IC-DISC. Our services include:

  • Feasibility studies, including entity structure planning
  • Coordination with attorneys for entity set-up and legal agreements
  • Annual calculation of DISC commission
  • Annual tax return preparation

Latest Insights

June 15, 2018
Recorded Webinar
Congress has passed the largest and most comprehensive tax reform legislation in the past 30 years and businesses and dealerships are trying to figure out the tax implications and what this means for them in their current situation and moving forward.
June 15, 2018
Learn more about the basics of cost segregation and whether your recent building purchase, renovation or new construction could reduce your taxes and increase cash flow.
June 14, 2018
It is not to say that well run companies do not get breached, but all indicators lead to the conclusion that if certain things are done from the top down, the effects and cost of defending your company against data breaches, and recovering from a breach…
June 14, 2018
All deals are unique in the world of transactions but unique does not have to equate to surprises on either side.
June 12, 2018
As taxpayers work closely with their tax advisers to develop tax projections and planning strategies, state income taxes take on greater importance than in the past - in addition, some states’ legislatures will not be taking up the issue of federal…
June 8, 2018
In May, investors were left to interpret mixed geopolitical and financial signals: The historic US-North Korea summit was on, then off, then possibly on again; An apparent truce emerged in the US-China tariffs battle, but it did not last; Oil rallied, but…