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The ABC’s of the IC-DISC

The IC-DISC is the last surviving federal income tax incentive for U.S. companies that have products or services delivered outside of the United States. Originally enacted by Congress in 1971, the IC-DISC is the only statutory export inventive available today. Corporations, S-Corporations, individuals and partnerships are eligible to receive this tremendous federal income tax savings available under the Internal Revenue Code.

The passage of the Tax Cuts and Jobs Act of 2017 provides permanence for the IC-DISC. As such, the IC-DISC provides a permanent federal income tax reduction to the shareholders of the IC-DISC. This tax savings is realized when the exporting company deducts the commission it pays to the IC-DISC from its ordinary income. This commission would typically be deductible at 37%. IC-DISC is a non-taxable entity, and a 23.8% percent tax is paid on qualified dividends to the shareholders of the IC-DISC. Thus, a reduction in federal income taxes from 37% to 23.8% on qualified export sales is realized.

ETM’s IC-DISC Services at a Glance

IC-DISC Incorporation and Corporate Structuring
  • Incorporate and structure your IC-DISC to provide the maximum federal tax savings while remaining non-invasive to your daily operations. IC-DISC Maintenance
  • Monitor and evaluate your IC-DISC structure to ensure IC-DISC is in full compliance in areas such as qualification of export sales, timing of commission payments and dividends as well as other required IRS filings.
Annual IC-DISC Compliance
  • Compile IRC §861 allocations and apportionment analysis to max Combined Taxable Income (CTI).
  • Prepare IRS Form 1120-IC-DISC, such as Schedules P returns and all related schedules for timely and accurate filing with the Internal Revenue Service.
Transaction-by-Transaction Optimization using ETM’s proprietary software application
  • Utilize all Intercompany Pricing methods such as product and product-line marginal costing, 4% of Gross Receipts special rules, loss optimization as well as all other methods to ensure that you receive the greatest federal income tax savings from your IC-DISC.
  • Provide the most comprehensive reports and documentation and analysis available so you and your tax counsel fully understand the IC-DISC process as well as the results.
IRS and State Taxation Authorities Examination Representation
  • Represent you throughout any audit and/or examination process up to and including the appeals process.

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