The IC-DISC (Interest Charge Domestic International Sales Corporation) is a powerful tax-saving opportunity for U.S. exporters.
What is an IC-DISC?
IC-DISC offers exporters permanent tax savings primarily resulting from a reduction in the tax rate on qualified dividends. It is available to manufacturers and distributors, and to all forms of business organizations, including C corporations, S corporations, partnerships, LLCs, and sole proprietors. Having an IC-DISC will not impact a company’s operations; it is transparent to customers.
How it works
To get started, an exporter must create a new corporate entity. Within 90 days, the new corporation files IRS Form 4876-A to elect IC-DISC status. This status exempts the entity from federal tax on its earnings. The new IC-DISC enters into a commission agreement with the seller of export goods whereby the IC-DISC will receive a commission on qualifying sales. Under IRS regulations, the IC-DISC is allowed to earn commission income totaling the greater of 50 percent of export profits or 4 percent of qualified export sales (subject to limitations). The IC-DISC commission is a current deduction to the U.S. exporter at ordinary income rates. When distributed, it becomes qualified dividend income (QDI) to the IC-DISC’s shareholders. Permanent federal tax savings result from the rate differential on these two income types, a potential savings of 19.6 percent.
In addition, the flexibility allowed for IC-DISC ownership structures can provide for wealth-transfer, retirement savings, and executive compensation planning opportunities.
IC-DISC benefits are generally available on sales of property produced in the United States but for ultimate use outside the country. “Foreign content“ cannot exceed 50 percent of the exporter’s selling price of the goods. IC-DISC benefits are available to every person in the supply chain and components of larger products often qualify for IC-DISC benefits, along with certain service revenues.
Optimizing IC-DISC benefits
IRS regulations provide several rules that can improve the basic result, but may require significant additional effort. Calculations can be made on a transactional basis, which allows an experienced practitioner to optimize benefits by performing detailed calculations using all allowable methods. CliftonLarsonAllen’s proprietary software and customized methodologies provide a fully maximized IC-DISC commission.
Our team of specialized practitioners focus exclusively on IC-DISC, and we will guide you through the selection of the optimal holding structure and manage all the legal documentation.
IC-DISC set-up and administration can be nuanced and complex depending on your structure and goals. We have experience in a wide variety of industries and supply-chain levels, so we tailor the implementation and calculation approach to fit your unique needs.
IC-DISC success stories
We have helped many of our clients leverage available tax savings through an IC-DISC. View some of our IC-DISC success stories.