Export Tax (IC-DISC)

Exporters can now save 20% in taxable income by setting up and IC DISC structure

IC-DISC Structure

The IC-DISC (Interest Charged Domestic International Sales Corporation) is a C Corporation that is utilized as a tax-savings vehicle for qualifying U.S. exporters. IC-DISC allows shareholders to be S-Corporations, individuals or partnerships. IC-DISC provides a permanent 20 percent tax savings and has several sophisticated features that assist businesses in meeting their financial objectives. The permanent tax savings is realized when the exporter deducts the commission it pays to the IC-DISC from its ordinary income, which is taxed at 35 percent. Since IC-DISC is tax exempt and taxes are only paid on distributions to shareholders, individual and pass-through company shareholders save 20 percent by only paying income tax on the dividends at the capital gains rate of 15 percent.

IC-DISC Benefits

Realization of permanent tax savings on qualified export sales
Increased liquidity for shareholders or the business
Ability to leverage cost of capital
Create management incentives
Facilitate succession or estate planning

IC-DISC Process

Owner-managed exporting company creates a new entity and elects tax-exempt IC-DISC treatment
Exporting company and IC-DISC entity execute a commission agreement
Exporting company pays IC-DISC a commission on export sales
Exporting company deducts commission from ordinary income, currently taxed at 35 percent
IC-DISC pays no tax on the commission income
IC-DISC can pay a dividend in current or future tax year
IC-DISC dividend is typically a qualified dividend, so shareholders pay income tax on distributions at the capital gains rate (15 percent)
Final result is a 20 percent tax savings on IC-DISC commission

Company export financials


Foreign trading gross receipts	10,000,000
Cost of goods sold	(7,000,000)
Gross Margin	3,000,000
Selling, general and administrative costs	(2,000,000)
*Export sales net income*	*1,000,000*

Company without IC-DISC


Taxes at federal tax rate (35%)	(350,000)
IC-DISC net tax savings	0

Company with IC-DISC using company level transaction analysis

IC-DISC commission (greatest of three calcultaions):


50% of export net income	500,000
50% of export net income using marginal cost	450,000
4% of export gross receipts	400,000
IC-DISC commissions	500,000
Federal tax savings (35%)	175,000
IC-DISC dividend	500,000
Federal tax cost (15%)	(75,000)
*IC-DISC net tax savings*	*100,000*

Company with IC-DISC using optimized transaction by transaction (T x T) analysis

IC-DISC optimized T x T commission (accumulative):


Full cost CTI transactions	350,000
Gross receipt transactions	50,000
Marginal cost transactions	250,000
IC-DISC commissions	650,000
Federal tax savings (35%)	227,500
IC-DISC dividend	650,000
Federal tax cost (15%)	(97,500)
*IC-DISC net tax savings*	*130,000*

Benefit of optimized transaction by transaction (T x T) analysis versus
company level transaction analysis


T by T IC-DISC commission	650,000
Company level IC-DISC commission	500,000
T by T increased IC-DISC commission benefit	150,000
T by T increased IC-DISC commission percentage benefit	30%
*T by T increasedIC-DISC net tax savings*	*30,000*

For a free review or more information please contact your local CORE Advisor or our offices at 888 706-4646.

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