IC-DISC Dividends and Schedule K-2/K-3

Quick Update: IC-DISC Dividends and Schedule K-2/K-3

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Taxpayers utilizing an IC-DIS should note the continuing importance of Schedules K-2 and K-3 in reporting international income. Since 2022, S corporations and partnerships receiving IC-DISC dividends must include this information to comply with the requirements of Schedule K-2/K-3.

Although IC-DISCs are domestic entities (Treas. Reg. § 1.992-1(a)(1)), dividends paid by an IC-DISC are classified as foreign-source income under Treas. Reg. § 1.904-4(b)(3) and Rev. Rul. 73-68. These dividends fall under the ‘specified passive category’ for foreign tax credit purposes.

If your IC-DISC is owned by an S corporation or partnership, be sure to reflect the foreign-source nature of the dividends on Schedules K-2 and K-3 to avoid potential issues with the IRS.

Author

  • Paul Ferreira, CPA, is the President and founder of Export Tax Management (ETM), which he established in 2008 after over ten years of experience in international tax. He is licensed as a Certified Public Accountant (CPA) in both Massachusetts and Rhode Island. Recognizing a need for specialized expertise in the Interest Charge-Domestic International Sales Corporation (IC-DISC), Paul has focused ETM’s services on helping businesses maximize their tax savings through this unique export incentive. With over 25 years of experience, he leads a team of skilled CPAs based in Boston, MA, providing expert IC-DISC and international tax consulting to companies across the U.S.

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