Incentivizing Exports with IC-DISC

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What is an IC-DISC?
In an effort to incentivize exports from the U.S., Congress created the “IC-DISC” designation. IC-DISC stands for Interest Charge Domestic International Sales Corporation. An IC-DISC is a domestic corporation through which producers and distributors of U.S.-made products used abroad can realize significant tax savings.

How Does an IC-DISC Work?
In order to derive tax benefits through an IC-DISC strategy, a qualifying producer and/or distributor must form a separate domestic corporation and formally elect for its treatment as an IC-DISC. The IC-DISC must maintain a separate bank account and set of accounting books, and must file an annual U.S. income tax return (though it pays no U.S. income taxes).

What are the Benefits of an IC-DISC Strategy?
The operating company pays a commission to the IC-DISC. The commission can be expensed and, thereby, reduce the operating company’s ordinary taxable income. Additionally, the IC-DISC pays dividends to its shareholders, which are taxed at a favorable rate of 20%. The net of these two items (the tax benefit from the commission deduction and the tax paid on dividend income) results in a permanent tax savings for the operating company and its shareholders.

Who Can Benefit from an IC-DISC?
As mentioned above, both producers and distributors of U.S.-made products can qualify to form an IC-DISC. Good candidates include, but are not limited to:

  • Traditional manufacturers, including both those that directly export their products and those that sell products that are destined for use overseas
  • Producers of agriculture products, minerals, and/or software
  • Distributors of U.S.-made goods
  • Architectural and engineering firms who work on projects that will be constructed abroad
  • Pass-through entities and privately-held corporations

WNDE’s team of tax professionals are thoroughly versed on IC-DISC implementation and maintenance. We are prepared to guide your organization in taking the most advantage of this tax incentive.

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