IC-DISC: Last Call for Export Incentives

IC-DISC is the last export incentive remaining after the 2004-2006 changes to the Extraterritorial Income Exclusion. Fortunately, it became even more attractive in the wake of the Job and Growth Tax Relief Reconciliation Act of 2003.

IC-DISC can provide tax benefits for exporters (see limited list below), though it is a bit complicated and requires the expertise of professional tax advisors.  

What, exactly, is an IC-DISC?

Essentially an IC-DISC is a separately created entity. The exporter pays commissions to the IC-DISC; those commissions are deductible to the exporter and the ultimate dividend payment of the net commission income in the IC-DISC is taxed to the exporter’s shareholders at a lower rate, rather than being taxed as ordinary income.

Who can use IC-DISC?

• Exporters of US goods (> 50% produced in US): those that directly export products or those that sell products that are destined for use overseas.
• Engineering or architectural services for construction projects outside of the US (even though actual work is performed in the US)
• Pass-through entities or privately held corporations (i.e., C Corp, S Corp, Partnership).

 Summary of Benefits: 

• Convert up to 50% of export taxable income to qualified dividend rate income.
• Defer taxation on those profits for as long as you keep the funds in the company;
• Flexible ownership structuring opportunities and excellent estate tax planning vehicle.

Sooner rather than later:

The benefits of IC-DISC are effective on a go-forward basis; therefore, the longer a taxpayer waits to form an IC-DISC, the less the benefits available to them.

Costs:  

Shareholders of IC-DISC must pay interest on tax deferred for earnings shifted to IC-DISC.

As always, you should consult with a tax professional prior to taking any action. Please call Mark Abrams at 404-874-6244 with questions on IC-DISC or other tax matters.