The Interest Charge Domestic International Sales Corporation (IC-DISC) encourages export activity by allowing tax deferral within the IC-DISC while it is engaged in export-related activity. Export Assist performs all IC-DISC incorporation, implementation, general accounting and ongoing management services including assistance with preparation of IRS Form 1120 IC-DISC, thereby helping to ensure IC-DISC legal and tax compliance. Export Assist can incorporate your IC-DISC within 24 to 48 hours at which time IC-DISC benefits begin.

For a detailed analysis and FREE IC-DISC Tax Benefit Report, please complete our online IC-DISC Inquiry Form and send it directly to us. We will process the report immediately. Should you have any questions, contact Ms. Tamara Crews, Vice President - Professional Markets, at 800-894-8366 or tcrews@exportassist.com. There is no cost or obligation and all information is confidential.

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IC-DISC Structure
The IC-DISC is a domestic corporation that has a single class of stock with a minimum par value of $2,500. An IC-DISC election must have been made and not terminated, and it must meet the following requirements:

• 95% Qualified Gross Receipts Test
  • sales of certain qualified export property
  • dividends
  • interest on any obligation that is a qualified export asset
  • managerial services
• 95% Qualified Export Asset Test
  • accounts receivable
  • funds for investment
  • obligations of Ex-Im Bank and PEFCO
  • reasonable working capital
  • obligations arising from producers’ loans
  • stock certificates of related foreign export corporations, i.e., VIEXCO incorporated as a Foreign International Sales Corporation (FISC).

In order to qualify for an IC-DISC, the U.S. exporter must have export property that:

• is manufactured, produced, grown or extracted in the United States by a person other than an IC-DISC
• is held primarily for sale, lease or rental for direct use, consumption or disposition outside the United States
• contains a minimum of 50% U.S. content.

The deferred income of the IC-DISC is calculated based on the combined income and expenses related to the export sales of the U.S. exporter and the IC-DISC. In case of the sale of export property to the IC-DISC, the transfer price would be computed in one of the three following methods, whichever is greater:

• THE “4-PERCENT” GROSS RECEIPT METHOD
  Under this method the transfer price for a sale by the exporter to the IC-DISC is the price as a result of which the deferred income of the IC-DISC will not exceed the sum of 4% of the qualified export receipts of the IC-DISC and the exporter and 10% of the export promotion expenses of the IC-DISC.
• THE “50-50” COMBINED TAXABLE INCOME METHOD
  Under this method, the transfer price for a sale by the exporter to the IC-DISC is the price as a result of which the deferred income of the IC-DISC will not exceed the sum of 50% of the combined taxable income of the IC-DISC and the exporter and 10% of export promotion expenses of the IC-DISC.
• SECTION 482 TRANSFER PRICING METHOD
  The transfer price for a sale by the exporter to the IC-DISC may be determined in a Section 482 Transfer Pricing study.
  

If the IC-DISC acts as a commission agent for export sales, only the first two methods above apply.

The IC-DISC can perform export promotion activities for which it may be reimbursed 100%. In addition, it may receive a 10% commission for performing these activities based upon the expenses it incurs.

Shareholder(s) of the IC-DISC can be subject to current taxation in the following circumstances:

• distribution or deemed distribution
• distribution upon disqualification
• income attributable to military property
• disposition of IC-DISC stock.

When qualified export receipts exceed $10,000,000 in a taxable year, the remainder is deemed distributed to the shareholders of the IC-DISC. This IC-DISC can be restructured and used as part of an executive incentive plan.

The IC-DISC owned by the exporter is illustrated below.

The IC-DISC can own the following related foreign export corporations:

• Foreign International Sales Corporation (FISC) – a foreign corporation, of which the IC-DISC owns more than 50%, that supports services related to any qualified sale, exchange, lease, rental or other disposition of export property by the IC-DISC. (Refer to IC-DISC with FISC below).
• Real Property Holding Company – a foreign corporation, of which the IC-DISC owns more than 50%, that holds title to real property located outside of the United States that performs the export-related activities of the IC-DISC, i.e. a foreign warehouse to support export activities.
• Associated Foreign Corporation – a foreign corporation, of which the IC-DISC owns less than 10%, that reasonably furthers transactions leading to qualified export receipts for the IC-DISC.
  

IC-DISC with Foreign International Sales Corporation (FISC)
The IC-DISC can, as part of meeting its requirements regarding the qualified export asset test, acquire and hold more than 50% of the stock certificates of a related foreign export corporation. In the tax code, one of these related corporations is described as a “Foreign International Sales Corporation (FISC)” that must be located in a jurisdiction outside of the fifty U.S. states and Puerto Rico.

The IC-DISC can form and own a FISC, such as the VIEXCO in the U.S. Virgin Islands. In doing so, a unique opportunity arises to receive the maximum export income deferral available to U.S. exporters. Income generated by this plan is not subject to Subpart F taxation as stated in the IC-DISC regulations. This structure also provides the opportunity for short- and medium-term financing.

Exceeding the annual $10,000,000 qualified export receipts cap will render the remainder of the deferred export income in the combined IC-DISC with FISC as deemed to have been distributed at the close of the year. This IC-DISC with FISC can be restructured and used as part of an executive incentive plan.

The IC-DISC with FISC, exporter-owned, is illustrated below.