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IC-DISC tax structure

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What is an IC-DISC?

IC-DISC is short for Interest Charge Domestic International Sales Corporation.  It is a separate legal entity, recognized by the IRS, which is set up for the purpose of taking advantage of certain tax incentives for U.S.-based exporters.  Originally enacted by Congress in 1971, it is the last surviving incentive for U.S. companies that have products or services delivered outside the United States.

YOU SHOULD CONSIDER SETTING UP AN IC-DISC IF: 

N
You have export sales of products or services over $2 million
N
You have a minimum net export sales of $500,000
N
You have significant tax liability on current or projected income

IN ORDER TO QUALIFY FOR AN IC-DISC, THE U.S. EXPORTER MUST EXPORT ITEMS THAT: 

N
Are grown, produced, manufactured or extracted in the United States by a person or entity that is not the IC-DISC
N
Are held primarily for sale, lease or rental for direct use, consumption or disposition outside the United States
N
Contains a minimum of 50% U.S. content

The THREE STEPS TO EXPORT SALES TAX SAVINGS

L

01

First, the exporting company creates new legal entity and elects federal non-taxable IC-DISC status.

 

IRS approval is required, and setting up this structure requires a deep knowledge of this specific area of the tax code.

ELECTION
L

02

After the IC-DISC status is approved by the IRS, tax savings can be realized by paying a commission to IC-DISC. This commission can be deducted at 39.6%, which reduces the ordinary taxable income of the corporation.

COMMISSION
L

03

The commissions paid to the IC-DISC are then distributed to the owners of the IC-DISC at qualified dividend rates (23.8%), resulting in a tax savings of 39.6%-23.8% or 15.8%.

DIVIDEND

REVEAL THE SAVINGS

Click on an IC-DISC commission amount to see the tax savings scenarios.

Keep in mind that calculating the amount of commission to pay on expert sales requires extensive experience in this area of tax law. See the possibilities, and then book a free consultation with Veracity’s IC-DISC tax expert.

$250,000

IC-DISC commission

$39,500

tax savings

$2,000,000

IC-DISC commission

$316,000

tax savings

$5,000,000

IC-DISC commission

$790,000

tax savings

Frequently Asked Questions about the IC-DISC structure

DOES MY TAX PREPARER ALREADY DO THIS?

Unless you are using one of the Big Four accounting firms, your tax preparer typically will not have the expertise in-house to handle the complex issues surrounding the establishment of an IC-DISC structure and the continued commission calculations required. He or she will generally look to an outside provider, such as Veracity, for the expertise to assist the client in need of IC-DISC services.

IS the ic-disc structure a permanent tax benefit?
The passage of the American Taxpayer Relief Act of 2012 made the IC-DISC structure a permanent part of the tax code going forward. This knowledge allows the owners of the exporting company to set up the IC-DISC structure without the fear of the incentive going away in the future.
How much does it cost and how much will I save?

In all of our projects, we prepare an initial no-cost analysis to determine the benefits of setting up an IC-DISC. From this analysis, we determine the cost of the IC-DISC and then you can make a final decision whether an IC-DISC would be beneficial to you and your business. The fees are 100 percent deductible, and, from our experience, the benefit will greatly outweigh the costs of setting up and administering the IC-DISC.

How do I get started?

Contact Veracity today at tax@taxveracity.com or call 888.968.4094 to request your no-cost estimate. You can also book a free consultation today. 

 

Ready to start saving?

Setting up and maintaining an IC-DISC structure requires deep knowledge in this specific area of the tax code.  Setting up the IC-DISC requires selecting the proper state to house the IC-DISC.  Selecting the methodology of calculating the commission on export sales requires extensive experience in this area of the tax law.  Finally, ongoing tax compliance is vital to retaining and defending the benefits derived by using the IC-DISC structure.

Veracity’s leaders and staff have the depth of knowledge and expertise required to perform the complex tasks associated with a proper establishment of an IC-DISC and the tax expertise to help you maximize the benefits.