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1. ©2013 CliftonLarsonAllen LLP
©2013 CliftonLarsonAllen LLP
The IC-DISC:
Tax Savings for Exporters
March 28, 2013
cliftonlarsonallen.com
Rob Kane, CPA
Partner
Rob.Kane@cliftonlarsonallen.com

2. ©2013 CliftonLarsonAllen LLP
What is an IC-DISC?
• Interest Charge Domestic International Sales
Corporation
• Generally available for goods and certain services
produced in U.S. for ultimate consumption outside
of U.S.A.
• History
– DISC (1972-1984) replaced with IC-DISC
– FSC (1985-2000) repealed
– ETI (2000-2005) repealed
– IC-DISC (since 1984 – alive and well)
• Initially only provided a limited deferral of tax, but
today’s IC-DISC provides substantial permanent tax
savings for U.S. exporters 2

3. ©2013 CliftonLarsonAllen LLP
What is an IC-DISC?
• 2004: Congress established a lower (15%) qualified
dividend rate which expanded IC-DISC opportunities
• American Taxpayer Relief Act (ATRA) raised
maximum qualified dividend rate to 20% (23.8% if
you include the new 3.8% Medicare tax on
investment income)
• 2013: Tax rates (including dividends) do not sunset
so they will not change until/unless Congress
amends the tax law
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4. ©2013 CliftonLarsonAllen LLP
IC-DISC Benefits
• “Export sales” are often larger than you might think
• Includes Canada and Mexico
• Components of larger products often qualify for DISC
benefits
• Indirect export sales often exceed Direct sales
• Examples: John Deere and Caterpillar suppliers
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5. ©2013 CliftonLarsonAllen LLP
IC-DISC Benefits
• Flow-through entities
– S corporations and LLC’s
– Convert ordinary income to qualified dividend income
• Closely-held C corporations
– Lower taxable income (ordinary rates)
– Deductible dividends
– Great for C corporations that pay dividends anyway
• Ownership Flexibility
– Wealth Transfer
– Executive compensation alternatives
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6. ©2013 CliftonLarsonAllen LLP
How Savings Happen
• Determine ownership and form new entity (IC-DISC
benefits are prospective only)
• New entity makes an election to be treated as an IC-
DISC; not subject to tax on earnings
• Exporter sells goods
• Exporter pays and deducts the DISC commission
• IC-DISC pays dividend to shareholders
• Permanent tax savings on rate difference
• No impact on Company’s operation and transparent
to customers
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7. ©2013 CliftonLarsonAllen LLP
IC-DISC Income/Deduction Flow
Shareholder
Reduced income Dividends
2012: 35% 2012: 15%
2013: 39.6% Benefit 2013: 23.8%
Tax savings on IC-DISC
$ Commission $
S corp / LLC IC-DISC
(exporter) (federal tax-exempt)
Commission paid
(reduces taxable income)
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8. ©2013 CliftonLarsonAllen LLP
IC-DISC Commissions
• Determine qualified export gross receipts and export
taxable income
• Statutory commission formula: Greater of 50% of
export taxable income or 4% of export gross receipts
• Example S corp. export sales $5,000,000 x 4% $200,000
S corp. export profit $1,000,000 x 50% $500,000
• Result: $500,000 commission; annual tax savings of
$79,000 (500,000 x 15.8%)
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9. ©2013 CliftonLarsonAllen LLP
Optimizing IC-DISC Benefits
• IRS regulations allow the DISC commission to be
calculated on a “Transaction by Transaction analysis
(TxT)”
• Sophisticated software optimizes benefits by
– Performing detailed calculations of taxable income for
every export line item
– Applying the most beneficial pricing method to each one
• Most beneficial method applied
• Substantial expansion of IC-DISC benefit
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10. ©2013 CliftonLarsonAllen LLP
QUESTIONS
Rob Kane, CPA
Partner
CliftonLarsonAllen LLP
600 3rd Avenue SE; Suite 300;
Cedar Rapids-IA 52401
Direct 319-558-0266
Cell: 319-333-9097
Rob.Kane@cliftonlarsonallen.com
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