The Internal Revenue Code contains provisions intended to help U.S. companies compete internationally by offering significant Federal income tax savings for export activities. However, many companies are not taking advantage of these rules or are not using them to their full potential. The Interest Charge Domestic International Sales Corporation (IC-DISC) provisions provide significant and permanent tax savings for producers and distributors of U.S. made products used abroad. The IC-DISC also can benefit certain service providers.
IC-DISC benefits are available to qualified producers or distributors that are either directly involved in exporting or selling products to distributors or wholesalers who resell for use outside of the U.S. This includes traditional manufacturers as well as those who grow agriculture products, extract minerals, distribute U.S. made goods, and develop software. Architectural and engineering services related to foreign construction projects are also included.
Below is a typical structure for a partnership or other flow-through entity.
ICS will perform a free analysis to determine if an IC-DISC is right for your company. ICS can also help companies with an existing IC-DISC by performing a transaction-by-transaction analysis, which can yield vastly increased tax savings.
Operating company has $4M in gross export sales and $1M in net export income. It will pay a deductible commission to the IC-DISC of at least $500K (50% of export net income), thus reducing ordinary income tax by $148K (using a 29.6% tax rate). The IC-DISC is tax exempt and pays no income tax on the commission received. The IC-DISC will pay the $500K commission back as a dividend to its owners, which will be taxed at $119K (using a 23.8% rate). The final result yields $29K of permanent tax savings.