How It Works and Overview of Requirements

1. Interest Charge Domestic International Sales
Corporation
IC‐DISC – How It Works and Overview of Requirements

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Formation of the IC-DISC
 Domestic (U.S.) Corporation
 $2,500 capital (minimum par value)
 Single class of stock
 Elect to be an IC‐DISC by timely filing Form 4876‐A.
(Generally 90 days from date of incorporation for new
corporations. Otherwise within 90 days of start of
taxable year)

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Taxation of an IC-DISC and its Shareholders
 An IC‐DISC is not subject to regular U.S. corporate
income tax
• File Form 1120‐IC‐DISC
 IC‐DISC pays a dividend to its owners
• 23.8% tax rate for individuals
 Permanent tax savings of up to 15.8% is based on tax
rate arbitrage

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Taxation of an IC-DISC and its Shareholders

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Example IC-DISC Structure
USAco
(Related
Supplier)
U.S.
Owner(s)
IC‐DISC
Dividend
23.8%
Commission
39.6%
S Corporation or
Partnership
Exports
U.S Foreign

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Example IC-DISC Structure
Brother‐Sister
C Corporation
USAco
(Related Supplier)
IC‐DISC
U.S.
Owner(s)
Commission
35%
Exports Foreign
U.S.

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Commission DISC vs. Operating DISC
 Most DISCs in practice are passive commission DISCs
• No employees, no functions, no risks
• Just a paper company that is paid a commission by the related
supplier
 But a DISC can have true operations
• E.g. buy/sell DISC where the DISC purchases goods from the
related supplier
• A commission DISC can have employees providing services to
the DISC and the related supplier

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Determining the IC-DISC Benefit
 The commission is the greater of:
‐ 4% of the qualified export receipts
$5,000,000 export sales x 4% = $200,000 commission
$200,000 commission x 15.8% = $31,600 tax savings
‐ 50% of taxable income from export receipts
$500,000 taxable income x 50% = $250,000 commission
$250,000 commission x 15.8% = $39,500 tax savings

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Qualification as Export Property
 Manufactured, produced, grown or extracted in
the U.S. by a person other than the IC‐DISC;
 Held primarily for sale, lease, or rental for direct
use, consumption or disposition outside the U.S.;
and
 May not have more than 50% of fair market value
of the export property attributable to foreign
content

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Planning Opportunities
 Ownership IRA
 Estate Planning/Trust
 Producer Loans
 Deferral & Factoring Receivables