1. The IC-DISC Export Incentives
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F additional i f
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ti t t f
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b dd @ l i d 9 3 31
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5. The IC DISC Export I
Th IC-DISC E Incentives
i
Putting tax credits to work for y
g your business.
Stephen Ragow
Tax Credit & Incentive Specialist
TRCG Advisors
4 0 0 C o n t i n e n t a l B l v d . 6 th F l o o r
El Segundo, Ca. 90245
(310) 968- 0708
sragow@trcgadvisors.com
www.TRCGAdvisors.com
6. Table of Contents
What Is The IC-DISC
Who Qualifies For A DISC
How The DISC Works
Sample Benefit
Entity Structures – Points Of Interest
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Questions
Summary y
Assessment Data
7. What Is An IC-DISC (IRC §§ 991~997)
Interest Charge-Domestic international Sales Corporation
g p
A “Tax Strategy” available to those U.S. companies engaged
in the export of goods and services.
The “DISC” is a domestic “paper” entity that provides a tax
DISC paper
incentive by allowing U.S. exporters to defer U.S. tax on a
portion of its export profits by shifting those profits to the
IC-DISC.
Exporters pay 15% tax rate on
½ of these profits – saving
20% of the tax liability that
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was previously incurred.
8. Who Qualifies For A DISC (IRC §§ 992; Reg. § 1.992-1)
Domestic corporations must meet these requirements
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1. All Businesses Engaged In Export Activities
Manufacturers, Agri-Business, Recycled Waster, Architects, Engineering Services
Included in Export Revenues are – export property, rents required for use of said
property, maintenance and support contracts tied to said property , etc.
2. Middleman Activities
Trade and Distribution organizations that buy from manufacturers and then sell
p oducts o e seas can a so qualify along t the a u actu e . e ey s
products overseas ca also qua y a o g with t e manufacturer. The key is
establishing the trail showing that goods were produced for overseas consumption
and, in fact, did go overseas.
3. Substantial Product Enhancement
Companies buying raw materials and/or sub-components from overseas – creating
finished goods here in the U.S. – and then selling those goods overseas also qualify.
The U.S. added content equals 50% or more of product value
q 5 p
10. Needed To Qualify (IRC §§ 992; Reg. § 1.992-1)
Domestic corporations must meet these requirements
p q
1. Must be duly incorporated under the laws of any State or
Washington D.C.
“S” Corp. – Partnership – LLC: DISC Entity is set as Wholly Owned Subsidiary
“C” Corp: DISC Entity is set as Brother/Sister Entity
See Section on Entity Structures – Points of Interest
2. Satisfy Certain “Test” Requirements
Receipts Test: 95% of DISC Gross Receipts are foreign sales
Assets Test: 95% of DISC assets must be made up of qualified Export Assets such
as the specific export property, Export Receivables, Loans to producers, etc.
Manufacturing Test: 50% or more of value of export property must come from
U.S. efforts.
11. How The DISC Works
Alternative Calculation Methodologies
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There are two (2) methods of DISC benefit calculation:
1. Simple Method: 4% of Foreign Gross Revenues are treated as the value that can be
run thru the DISC as a payable dividend.
2. 50% of the Net Profits generated from foreign sales can be treated as the value run
thru the DISC as a payable dividend. Does require proof of profit margin model and
group substantiation of t
b t ti ti f transactions
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While the simple method does allow for quick and easy
calculation it works best when the exporting company is
selling one product of fairly low margin value but lots of
transactions.
When a company is selling a higher margin product
and/or multiple product lines of varying margin levels the
simple method usually results in leaving money on the
table
12. Ten Percent (10%) Net Margin on Products
( ) g
Sample Benefit w/o IC-DISC w/ IC-DISC
IC DISC IC DISC
Foreign Trade Receipts $10,000,000 $10,000,000
Cost Goods Sold $ 6,000,000 $ 6,000,000
SG&A $ 3,000,000 $ 3,000,000
Export Net Income $ 1 000 000
1,000,000 $ 1 000 000
1,000,000
DISC-Comm. $ 500,000 - $ 500,000
Deduction
Resulting Tax Base $ 1,000,000 $ 500,000 $ 500,000
Tax Rate 35% 35% 15%
Tax Paid $ 350,000 $ 175,000 $ 75,000
NET SAVINGS $ 100,000
13. Application – Simple Method (4 )
pp p (4%)
Sample Benefit w/o IC-DISC w/ IC-DISC
IC DISC IC DISC
Foreign Trade Receipts $10,000,000 $10,000,000
Cost Goods Sold $ 6,000,000
SG&A $ 3,000,000
Export Net Income $ 1 000 000
1,000,000 $ 4 000 000
4,000,000
DISC-Comm.
Deduction
Resulting Tax Base $ 1,000,000 $ 600,000 $ 400,000
Tax Rate 35% 35% 15%
Tax Paid $ 350,000 $ 210,000 $ 60,000
NET SAVINGS $ 80,000
14. Entity Structures – Point Of Interest
U.S. owned operations (
p (“S” Corps., LLC’s., “C” Corps) all
p , , p )
can benefit and can easily set up a DISC entity.
It is where Foreign ownership is involved that DISC can
impact other Foreign Tax credit opportunities. Each case
can be so different – a preliminary analysis is suggested to
determine if a DISC can be set up and, if it can, where the
maximum benefits to the client actually rest.
16. Questions & Answers
Questions will be answered in the order received via our
webinar chat and if time allows, we will open the phone line
for additional questions by phone. Questions can also be
submitted via email; please forward to
bmadden@elcamino.edu.
Due to the nature of most questions and the time it would
take to respond in detail, we will follow-up with all webinar
registrants with typed questions and answers
answers.
17. Summary
The IC-DISC can be a vital Tax Strategy for many small and
mid-sized growing fi
id i d i firms engaged in exports. Th t
di t The tax
savings can be a significant part of cash generation for the
business.
For additional information or for a no-cost assessment (see
next slide for needed data) contact Bronwen Madden at
CITD/SBDC – contact information noted below:
El Camino College Business Training Center
13430 HHawthorne Bl d Hawthorne, CA 90250
h Blvd., H h
Phone: 310-973-3173 / Fax: 310-973-3132
bmadden@elcamino.edu / www.elcaminocitd.org
@ g
18. Assessment Data Needed
Company Info Export Info
Company Name Primary Line of Business
Company Address Entity Type
Contact Name Number of Owners (if
Title p
private)
)
Phone % of Foreign Ownership
Fax Export Sales Value
Email Export COG Sold Value
ld l
Website SG&A Export Value
Fiscal Year End Already have a DISC?
