IC-DISC Export Tax Incentive
Reduce your effective tax rate on qualifying export income.
The Interest Charge Domestic International Sales Corporation, commonly known as IC-DISC, is one of the few remaining permanent export tax incentives available to U.S. businesses under federal law. For eligible exporters, an IC-DISC structure converts a portion of export income from ordinary income taxed at rates as high as 37% into qualified dividend income taxed at preferential rates of 23.8 % or less, generating a permanent cash tax benefit that grows in proportion to export activity.
BPM’s IC-DISC professionals work with manufacturers, agricultural producers, and other eligible exporters to establish, administer, and optimize IC-DISC structures that deliver the full benefit available under current law.
How the IC-DISC Incentive Works
An IC-DISC is a separate domestic corporation that receives an IC-DISC commission from the operating company on qualifying export sales. The operating company deducts the commission, reducing ordinary income, while the IC-DISC pays no federal income tax on the commission received.
When the IC-DISC distributes its earnings to shareholders, those distributions are treated as qualified dividends taxed at preferential capital gains rates. The result is a permanent reduction in the effective tax rate on qualifying export income, with no requirement to change business operations or move functions offshore.
CONNECT WITH IC-DISC EXPORT TAX PROFESSIONAL
Qualifying export property generally includes manufactured goods and agricultural products produced in the United States and sold for use outside the country. Selecting the most advantageous commission calculation methodology for a given company’s export profile is one of the primary ways BPM’s specialists add value to the engagement. For businesses that also generate Foreign-Derived Intangible Income, IC-DISC strategy should be coordinated with FDII planning to ensure the two provisions work together rather than creating conflicts in the overall international tax position.
BPM’s IC-DISC Services
BPM’s IC-DISC specialists are among the most experienced in the country. Our specialists work with exporters across industries to establish and administer IC-DISC structures and maximize the available benefit:
Establishing the IC-DISC entity, meeting election requirements, and maintaining the annual compliance obligations required to preserve the structure
Managing annual Form 1120-IC-DISC preparation, commission payments, dividend distributions, and recordkeeping requirements to keep the structure in good standing
Reviewing your export sales, product mix, and entity structure to determine whether an IC-DISC is appropriate and estimate the potential tax benefit
Integrating IC-DISC planning with Foreign-Derived Intangible Income provisions to optimize the overall international tax position
Analyzing alternative commission methodologies, including the transaction-by-transaction method, to identify the approach that maximizes the deductible commission
Reviewing export sales and service revenue to identify all qualifying gross receipts and ensure the commission base reflects the full scope of eligible activity
If your business exports goods or services produced in the United States, there may be a permanent tax benefit you are not yet capturing. Contact us to find out.
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