1120-IC-DISC Schedule K – Filing Guide for 2026

The 1120-IC-DISC Schedule K is a required component of Form 1120-IC-DISC, the annual federal tax return filed by IC-DISCs to report export-related income and distributions to shareholders. For companies preparing their 2025 tax returns in 2026, Schedule K serves a critical role in documenting how profits are distributed, whether actually paid, deemed distributed, or deferred under the IC-DISC structure.

Accurate completion of Schedule K ensures that shareholder income is correctly reported, avoids compliance risks, and supports the long-term benefits of IC-DISC tax deferral. Errors on this schedule can create mismatches with other parts of the return (like Schedules J and M-2), potentially triggering IRS scrutiny or missed tax savings.

In this guide, we’ll break down what Schedule K is, how to complete it step by step, what the IRS expects in 2026, and how to avoid common mistakes. Whether you’re a seasoned CPA or managing your first IC-DISC, this article is designed to help you file with confidence.

If you’re new to IC-DISCs, we recommend starting with our introduction to IC-DISCs to understand how this structure works and who qualifies.

Table of Contents

1. What Is Schedule K on Form 1120-IC-DISC?
2. How to Complete Schedule K (Step-by-Step Guide)
3. Types of Distributions Reported on Schedule K
4. Common Mistakes to Avoid When Filing Schedule K
5. Filing Deadlines and Compliance Reminders for Schedule K (2025 Tax Year)
6. Best Practices for Preparing and Filing Schedule K
7. Common Questions for 2025/2026 Filings
8. Conclusion

What Is Schedule K on Form 1120-IC-DISC?

Schedule K is the Shareholder’s Statement of IC-DISC Distributions, a required schedule filed with Form 1120-IC-DISC. It reports the amount and type of income each shareholder receives from the IC-DISC during the tax year. Specifically, Schedule K is used to disclose:

• Actual distributions paid to shareholders
• Deemed distributions, where income is treated as distributed for tax purposes
• Deferred IC-DISC income, which is retained in the DISC but tracked for future tax recognition

This schedule provides the IRS and the shareholders with a clear record of how income flows from the IC-DISC entity to its owners. Shareholders use the information on Schedule K to report income on their personal or corporate tax returns and calculate any applicable tax liability.

While Schedule K is relatively short, it plays an outsized role in IC-DISC compliance. Errors here can result in misreported dividend income, inconsistency with Schedule J totals, and potential IRS follow-up.

The IRS requires a separate line on Schedule K for each shareholder, along with that shareholder’s:

• Name and address
• Taxpayer Identification Number (TIN)
• Percentage of ownership
• Type and amount of each distribution

Schedule K must be attached to Form 1120-IC-DISC and submitted by the filing deadline, which is typically the 15th day of the 9th month following the end of the tax year (e.g., September 15, 2026, for calendar-year filers). Late or incomplete filing can delay processing and trigger compliance issues.

Later in this guide, we’ll walk through how to complete Schedule K step by step. But first, let’s look more closely at the types of income reported and how they affect both the IC-DISC and its shareholders.

How to Complete Schedule K (Step-by-Step Guide)

Although the 1120-IC-DISC Schedule K may appear simple, accurate completion is essential to avoid discrepancies with other parts of the IC-DISC return and to ensure shareholders report the correct income on their individual or corporate returns. Here’s a step-by-step guide to completing Schedule K for the 2025 tax year, due in 2026.

Step 1: List Each Shareholder Separately

Each shareholder must be reported on a separate line. For each, provide:

• Name and Address
• Taxpayer Identification Number (TIN) – either SSN or EIN
• Ownership Percentage – based on outstanding shares throughout the tax year

Tip: If ownership changes during the year, prorate the amounts or add separate entries.

Step 2: Report Distributions by Type

For each shareholder, report the following (based on the corresponding lines of Schedule J):

a) Actual Distributions

• Enter any payments made during the tax year.
• These amounts are generally sourced from Schedule J, Line 6 (previously taxed income) or Line 7 (other earnings).

b) Deemed Distributions

• Enter any amounts that are considered distributed under IRC § 995.
• These may result from investment disqualification or asset test failures.

c) Deferred DISC Income

• Show the shareholder’s share of export income that is retained (not currently distributed) and eligible for tax deferral.

Important: Deferred income is not currently taxable, but it must be tracked and disclosed. It becomes taxable when later distributed or when a triggering event occurs.

Step 3: Reconcile Totals Across Schedules

Schedule K should match up with:

• Schedule J – confirms total distributions and retained earnings.
• Schedule M-2 – shows accumulated income and retained balances.

Common Mistake to Avoid: Reporting deferred income on Schedule K but forgetting to show the same amount as retained earnings on Schedule M-2.

Step 4: Check for Completeness and Consistency

Before filing, ensure:

• All shareholders are listed
• Ownership percentages total 100%
• Distributions reconcile with supporting schedules
• Shareholder information is current and matches IRS records
• The form is attached to the final 1120-IC-DISC return

Step 5: Deliver Schedule K Information to Shareholders

Each shareholder will use Schedule K details to prepare their tax returns. This is especially important for:

• Individuals reporting dividend income on Form 1040
• S Corporations and Partnerships passing IC-DISC income through to owners
• C Corporations needing proper classification of income

Optional but Recommended: Include a Shareholder Summary Letter

While not required by the IRS, providing a simple summary (or cover letter) explaining the income types reported on Schedule K can prevent confusion, especially when distributions include deferred and deemed components.

Types of Distributions Reported on Schedule K

The 1120-IC-DISC Schedule K requires a breakdown of the three main categories of shareholder distributions:

1. Actual Distributions
2. Deemed Distributions
3. Deferred IC-DISC Income

Understanding the differences between these types is essential for accurate reporting, proper tax treatment, and alignment with the other schedules on the IC-DISC return (such as Schedule J and Schedule M-2).

1. Actual Distributions

An actual distribution occurs when the IC-DISC physically pays cash (or property) to a shareholder. These payments are generally classified as qualified dividends and are taxable to shareholders in the year received.

Key Points:

• Reported as a dividend on the shareholder’s tax return.
• The amount should be supported by entries on Schedule J (line 6 or 7, depending on the source of the income).
• Must be recorded on Schedule K for each shareholder who received a payment.

Example: If the IC-DISC paid $50,000 to a shareholder during 2025, this amount must appear as an actual distribution on that shareholder’s line in Schedule K.

2. Deemed Distributions

Deemed distributions are amounts the IRS treats as distributed to shareholders even though no actual payment was made. These often arise in two situations:

• The IC-DISC fails to meet qualified export asset tests.
• Income is disqualified due to excess investment in non-export property.

Tax Implications:

• Taxable to shareholders in the year deemed distributed.
• Often overlooked but can trigger penalties if not reported.

Note: Deemed distributions reduce the IC-DISC’s accumulated income and must also be reflected in Schedule M-2.

3. Deferred IC-DISC Income

IC-DISCs are allowed to defer a portion of export-related income, provided the company qualifies under IRS rules. This income is not immediately taxable to shareholders, but it must still be tracked and reported on Schedule K.

Key Points:

• Deferred income appears in a separate column on Schedule K.
• It does not generate a current tax liability for shareholders.
• The deferral continues until the income is distributed, the IC-DISC is liquidated, or a triggering event occurs.

Strategy Tip: Properly managing deferred income is central to maximizing IC-DISC tax benefits. For more on how to strategically defer and recognize IC-DISC income, see our guide on IC-DISC Tax Strategy.

Quick Comparison Table: Distribution Types

Common Mistakes to Avoid When Filing Schedule K

Even though the 1120-IC-DISC Schedule K is only one page of Form 1120-IC-DISC, errors or omissions can lead to meaningful tax consequences for both the IC-DISC and its shareholders. Below are the most common issues encountered and how to avoid them when filing your 2025 IC-DISC return in 2026.

1. Misclassifying Distribution Types

One of the most common errors is confusing actual, deemed, and deferred distributions. This can lead to:

• Overstating taxable income for shareholders
• Underreporting retained earnings on Schedule M-2
• IRS correspondence requesting clarification

How to avoid it: Cross-check Schedule K with Schedule J and Schedule M-2, and ensure each type of distribution is accurately defined and sourced.

2. Failing to Reconcile with Schedule J and M-2

Distributions reported on Schedule K must align with:

• Schedule J (Line 6–7) for income available for distribution
• Schedule M-2 for undistributed income and earnings reconciliation

Tip: The IRS expects consistency across all schedules. Any mismatch could trigger review or delay in processing.

3. Omitting Shareholder Information or TINs

Missing TINs, names, addresses, or ownership percentages may result in:

• Rejected returns
• Processing delays
• Inability for shareholders to correctly report income on their own returns

Best practice: Confirm all shareholder details are current and consistent with IRS records before filing.

4. Incorrect Ownership Percentages

Failing to update ownership for mid-year changes (e.g., redemptions, new shares issued) may result in incorrect allocations of income or deferral amounts.

What to do: If ownership changed during the tax year, file multiple lines for the same shareholder, each reflecting the relevant period and distribution.

5. Reporting Deferred Income as Taxable

Deferred DISC income is not taxable until:

• It is actually distributed
• The IC-DISC is liquidated
• A disqualifying event occurs (such as export asset failure)

Mistake: Some filers mistakenly include deferred income as a taxable dividend, resulting in unnecessary tax for the shareholder.

Fix: Clearly separate deferred income on Schedule K and ensure it’s not picked up as dividend income prematurely.

6. Missing or Late Filing

IC-DISC returns (including Schedule K) are due on the 15th day of the 9th month after the close of the tax year. For calendar-year filers, that means September 15, 2026.

Important: No automatic extension is available for Form 1120-IC-DISC. Filing late can result in penalties and lost tax deferral opportunities.

7. Not Providing Schedule K Information to Shareholders

Each shareholder must receive their portion of Schedule K details in order to report the correct income on their return. Failure to provide this information may lead to:

• Incorrect tax filings
• Shareholder inquiries
• Delays during IRS audits

Filing Deadlines and Compliance Reminders for Schedule K (2025 Tax Year)

Accurate and timely completion of the 1120-IC-DISC Schedule K is critical for compliance and proper shareholder income reporting. Below are the essential deadlines, filing requirements, and compliance tips to keep in mind when preparing the 2025 IC-DISC tax return, due in 2026.

IC-DISC Filing Deadline

• Due Date: The IC-DISC return (Form 1120-IC-DISC), including Schedule K, is due on the 15th day of the 9th month after the end of the tax year.
  • For calendar-year IC-DISCs, the due date for 2025 returns is September 15, 2026.
• No Extension Available:
  The IRS does not allow extensions for filing Form 1120-IC-DISC. Missing the deadline can lead to:
  • Loss of export tax benefits for the year
  • Potential IRS penalties
  • Challenges in claiming deferral

Who Must File Schedule K

• All IC-DISCs with one or more shareholders must complete and attach Schedule K.
• Each shareholder must be listed individually, including:
  • Name
  • TIN (SSN or EIN)
  • Percentage ownership
  • Amount of actual, deemed, and deferred distributions

Where to File

Schedule K is not filed separately. It must be attached to the full Form 1120-IC-DISC return and submitted to the IRS. As of now, IC-DISC returns are paper filed and must be mailed to the appropriate IRS processing center.

For more detail on this process, see our full guide to Form 1120-IC-DISC filing.

Shareholder Notifications

The IC-DISC must provide shareholders with a copy of their Schedule K information so they can:

• Accurately report dividend income
• Track deferred income allocations
• Prepare for future tax recognition events

It’s best practice to send this information at the same time the IC-DISC files its return.

Maintain Supporting Records

The IRS expects IC-DISCs to maintain documentation supporting all figures reported on Schedule K, including:

• Board resolutions declaring actual distributions
• Export receipts and commission calculations
• Asset tests and retained earnings schedules

For guidance on maximizing compliance and audit readiness, see our article on IC-DISC Rules.

Best Practices for Preparing and Filing Schedule K

Filing the 1120-IC-DISC Schedule K correctly isn’t just about meeting IRS requirements; it’s also a strategic move to maintain tax efficiency and avoid costly errors. Below are key best practices to follow as you prepare Schedule K for your 2025 IC-DISC return.

1. Start Early and Coordinate with All Stakeholders

Begin gathering shareholder data, distribution records, and supporting documentation well before the filing deadline. Coordination between the IC-DISC administrator, outside CPA firm, and corporate tax team ensures:

• Accurate ownership records
• Timely calculation of deferred and actual distributions
• Correct allocation of earnings per shareholder

Early preparation helps prevent last-minute errors or missed deadlines.

2. Confirm Shareholder Information

Ensure the following are accurate and up to date for each shareholder:

• Full legal name and mailing address
• Taxpayer Identification Number (TIN)
• Ownership percentage throughout the year

This is especially important for entities with multiple or changing shareholders. If there were mid-year changes, use separate lines on Schedule K to reflect prorated ownership.

3. Reconcile with Schedule J and M-2 Before Filing

Before finalizing the return:

• Match Schedule K totals to Schedule J distributions
• Verify deferred income lines with Schedule M-2 balances

This step avoids mismatches the IRS might flag during review.

4. Retain Supporting Documentation

The IRS may request supporting records during an audit or review. Maintain:

• Dividend declarations
• Export commission calculations
• Basis schedules
• Distribution board minutes or internal memos

Proper documentation supports the validity of deferred income and shareholder allocation.

5. Provide Shareholders with Clear Summary Statements

In addition to filing Schedule K with the IRS, send each shareholder:

• A copy of their Schedule K line
• A plain-language summary of what the numbers represent (e.g., taxable vs deferred income)

This reduces confusion and ensures the shareholders properly report their IC-DISC income.

6. Use a Review Checklist

Before submission, walk through a final checklist:

• Are all shareholders listed?
• Are the ownership percentages accurate and complete?
• Do Schedule K totals match Schedule J and M-2?
• Have shareholders received their distribution summaries?

You can also build a custom internal checklist or use our template (contact us for access).

7. Work with an IC-DISC Specialist

Many errors occur when IC-DISC tax returns are handled by generalists unfamiliar with the structure. An experienced advisor can help ensure:

• Proper treatment of deferred income
• Tax savings are maximized
• Compliance is maintained year to year

Export Tax Management is led by Paul Ferreira, a CPA with over 25 years of experience focused exclusively on IC-DISCs. Learn more about Paul’s background here.

Schedule K – Common Questions for 2025/2026 Filings

Conclusion and Next Steps

The 1120-IC-DISC Schedule K may be a small part of Form 1120-IC-DISC, but it’s a critical component of compliance for any company using the IC-DISC structure. Accurate reporting of actual, deemed, and deferred distributions helps ensure shareholder income is properly reported and the IC-DISC maintains its tax benefits.

If you’re unsure how to complete Schedule K or want to review your IC-DISC filing strategy, we can help. With over 25 years of experience, Paul Ferreira and the team at Export Tax Management provide specialized guidance for exporters using the IC-DISC structure.

Ready to file your 2025 IC-DISC return?
Contact us to schedule a consultation or get expert assistance with Schedule K and your entire IC-DISC compliance process.