The document discusses the benefits of an Interest Charge Domestic International Sales Corporation (IC-DISC) for US exporters. An IC-DISC allows US exporters to reduce their tax rate on export profits by up to 16 percentage points. It functions as a domestic corporation that receives commission payments from the exporting company on qualified export sales. This helps stimulate exports by providing an export tax incentive that has existed since the 1970s. The document outlines the requirements to establish an IC-DISC and how it can help lower taxes for US companies that export goods.

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U.S. Exporters: Have You Considered the Benefits of an IC­
DISC?
www.globaltrademag.com/global­trade­daily/commentary/u­s­exporters­have­you­considered­the­benefits­
of­an­ic­disc
International Trade
April 11th, 2016 | Written by Max Koss and Kevin Lucier
It’s the one remaining U.S. export incentive and provides exporters an opportunity to
decrease their taxes on export profits.
THE IC­DISC IS AN EXPORT INCENTIVE THAT WAS ENACTED BY CONGRESS TO STIMULATE EXPORTS: “It’s
not a tax shelter, and it’s been around for over forty years,” advise Warren Averett CPAs Max Koss and Kevin
Lucier.
There have been significant changes in and repeals of tax laws affecting U.S. businesses over the last 14 years.
However, one export incentive that has been around since the early 70’s remains intact and is having a
resurgence.
An interest­charge domestic international sales corporation (IC­DISC) can be a powerful tax­savings opportunity
for many companies exporting products. The current 23.8 percent tax rate on qualified dividends, comprised of a
base 20 percent tax plus 3.8 percent net investment income tax (NIIT), makes the IC­DISC worth looking into.
If you haven’t looked into it before, or it’s been awhile, now is the time to take another look at it. Your business may
have changed, maybe there are new decision makers involved, maybe your exports are up, or maybe the reasons
for not going forward before no longer exist.
Here are the basics. A U.S.­based exporter is allowed a deduction for the commission paid to an IC­DISC at the
exporter’s ordinary tax rate. The shareholders of the IC­DISC are taxed on the resulting dividend at the 20 percent
rate, usually with an additional 3.8 percent NIIT. Assuming a maximum 39.6 percent individual tax rate on income
from flow­through entities such as LLCs and S corporations, the tax savings can reach almost 16 percentage

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points.
The IC­DISC, in most cases, is a paper entity, a U.S. corporation that is paid a commission by the related supplier
—the exporter—on its export sales. Keep in mind, this is an export incentive that was enacted by Congress to
stimulate exports. It’s not a tax shelter, and it’s been around for over forty years.
The commission paid to an IC­DISC is generally the greater of 50 percent of the net profits, or four percent of the
gross receipts, but not more than 100 percent of the net profits, on exports of products that are manufactured,
grown, or extracted in the United States.
The products must be manufactured, grown, or extracted in the United States by an entity other than the IC­DISC.
The products must be held primarily for sale, lease, or rental for direct use, consumption or disposition outside the
United States. Up to 50 percent of the fair market value of the export property can be attributable to foreign
content.
An IC­DISC must also be a domestic corporation; have at least $2,500 in capital; have only a single class of stock;
file a timely election to be treated as an IC­DISC; and must meet a 95 percent qualified export asset test and a 95
percent qualified gross receipts test.
An IC­DISC is not subject to U.S. income tax. It is more like a partnership, LLC, or S corporation in that its
shareholders are subject to U.S. income tax on their share of the IC­DISC’s income. The exporter, its
shareholders, its management, its employees, family members or any combination thereof can own the IC­DISC.
For example, the IC­DISC can be used to generate incentive bonuses for management or employees, or facilitate
succession planning. Alternatively, the funds accumulated in the IC­DISC can be distributed to the shareholders
and loaned or contributed back to the exporter if the cash is needed.
The IC­DISC regime is the one remaining U.S. export incentive and provides U.S.­based exporters an opportunity
to decrease their U.S. taxes on export profits by almost 16 percentage points. It’s worth considering, or
reconsidering, as the case may be.
Max A. Koss, CPA, is the Director of International Tax at Warren Averett CPAs and Advisors and is based in the
firm’s Birmingham, Ala. office. He may be contacted at max.koss@warrenaverett.com. Kevin C. Lucier, CPA, is a
Member in the firm’s Atlanta office, and may be contacted at kevin.lucier@warrenaverett.com.
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