What’s an IC-DISC Corporation?
An Interest Charge-Domestic International Sales Corporation (IC-DISC) is a specialized tax-advantaged entity created to benefit U.S. businesses engaged in manufacturing and exporting goods. By forming an IC-DISC, qualifying companies can achieve substantial tax savings while remaining compliant with U.S. tax laws.
To operate as an IC-DISC, a corporation must formally elect IC-DISC status and file an annual U.S. income tax return. Although it must meet reporting requirements, an IC-DISC itself is not subject to U.S. income tax.
Eligibility Requirements for IC-DISC Status
A corporation must meet the following criteria to qualify as an IC-DISC:
- It must have a single class of stock with a minimum aggregate par value of $2,500.
- At least 95% of its gross receipts must come from export sales of U.S.-manufactured goods.
- At least 95% of its assets must be qualified export inventory.
- It must use the same tax year as its principal shareholder.
- It must maintain separate books and records.
- It cannot be part of a controlled group that includes a foreign sales corporation.
To meet the qualified gross receipts test, at least 95% of an IC-DISC’s income must come from commissions earned on the sale of qualified export property. This property must:
- Be manufactured, produced, grown, or extracted in the United States by a company other than the IC-DISC.
- Be held for sale, lease, or rental for direct use outside the United States.
- Have no more than 50% of its value derived from imported materials.
Additionally, under the qualified export asset test, at least 95% of the IC-DISC’s assets must consist of qualified export inventory, which is valued based on cost or market value.
How an IC-DISC Operates
An IC-DISC serves as a tax incentive structure designed to help U.S. exporters reduce taxable income by shifting export-related profits to a tax-exempt entity. To take advantage of this benefit, a company establishes a separate corporation that qualifies as an IC-DISC under IRS regulations.
This entity typically exists on paper and does not engage in active business operations. Instead, it functions as a financial mechanism to optimize tax savings. The parent company, which is the actual exporter, enters into a commission agreement with the IC-DISC, paying it a commission based on export sales revenue.
Legal Considerations for Forming an IC-DISC
The process of forming an IC-DISC requires careful legal structuring, including the preparation of:
- Bylaws
- Corporate books
- Financial records
Seeking legal and tax guidance is essential to ensure compliance with IRS regulations and to maximize tax benefits.
If you are considering an IC-DISC for your exporting business, Spiegel & Utrera, P.A. can help you navigate the formation process, maintain compliance, and take full advantage of available tax incentives.
Start Your ic-disc Today
Start your business the right way — create your IC-DISC with Spiegel & Utrera, P.A. — trusted, experienced, and ready to help you succeed!