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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