Interest Charge Domestic International Sales Corporation 101

What is an IC-DISC? It’s an Interest Charge-Domestic International Sales Corporation. If your business may involve U.S. manufacturing of goods for export, you may be entitled to tax savings with an IC-DISC. The new interest charge domestic international sales corporation must formally choose to be treated as an IC-DISC and must also file an annual U.S. income tax return even though it pays no U.S. income taxes.

Form an IC-DISC

Each Corporation or Limited Liability Company is COMPLETE

INCLUDES State Filing Fee, “YES! Includes State Filing Fee”
INCLUDES Corporate or Company Seal and Book
INCLUDES Certificate or Articles of Incorporation or Organization
INCLUDES Company or Corporate Minutes
INCLUDES Corporate By Laws or LLC Regulations
INCLUDES Corporate or LLC Ownership Register
INCLUDES Banking Resolution
INCLUDES Membership or Stock Certificate
INCLUDES Preliminary Name Search
INCLUDES 110% Lowest Price Guarantee!

Interest Charge Domestic International Sales Corporation Rules and Requirements

To be eligible to make an IC-DISC election, the corporation must satisfy several IC-DISC rules and requirements:

• There is a single class of stock with an aggregate minimum par value of $2,500;
• 95% of gross receipts involve goods manufactured in the U.S. as described below;
• 95% of the assets of the IC-DISC is inventory for export as described below;
• The tax year conforms to that of the IC-DISC’s principal shareholder;
• Separate books and records are maintained by the IC-DISC; and
• One of the IC-DISC rules is that the IC-Disc is not a member of a controlled group involving a foreign sales corporation.

Interest Charge Domestic International Sales Corporation Commissions

Some considerations to notice in regard to IC-DISC commissions:

• The exporter-parent corporation pays an annual, tax-deductible IC-DISC commission on its export sales to the IC-DISC (the commission deduction could yield a tax benefit as high as 35 percent).
• The qualified gross receipts test is met if 95% or more of the gross receipts consist of IC-DISC commissions earned with respect to qualified export property, which is property (i) manufactured, produced, grown, or extracted in the United States by a person other than an interest charge domestic international sales corporation.
• The allowable commission rate is either 50 percent of export net income or 4 percent of gross export income, whichever is greater.

IC-DISC Tax

The new corporation must formally elect to be treated as an IC-DISC and must also file an annual U.S. income tax return even though it pays no U.S income taxes. The commissions paid to the IC-DISC create 35 percent tax benefits for the U.S. exporting corporation while the individual shareholders of the IC-DISC would pay only 15 percent U.S. income tax on dividends received. That means the permanent IC-DISC tax savings for U.S. exporters and their shareholders can be as high as 20 percent!

• The commission income is accumulated and untaxed in the IC-DISC. The deferral of income is allowable on annual export sales up to $10 million;
• The IC-DISC shareholders are required to pay interest (to the IRS) on the accumulated but untaxed income; and
• The IC-DISC shareholders pay U.S. income tax on dividends received from the IC-DISC when distributions are made (the IC-DISC tax on dividends for individuals is now 15 percent).

IC-DISC Dividends

Export-derived proceeds are paid to IC-DISC shareholders as a dividend taxed at a lower rate than the taxable income-reducing deduction realized by the exporter-parent (a potential tax savings of 20 percent!). Here’s an example of the process and the IC-DISC dividends paid to IC-DISC shareholders: