We have been very busy of late with a number of requests from companies review their individual situations and help them understand if their export sales can qualify for IC-DISC treatment and tax savings. It occurred to me that while I recognize these companies are out speaking to a number of consultants, it can be difficult to know what questions to ask and how to assess the quality and experience of each company.
So, in an effort to provide some direction to those who are searching for help both setting up and optimizing their IC-DISC consulting, I thought a bit of information might be in order.
By the way, if you are just now getting started understanding the IC-DISC and would like a quick and easy 10,000 foot review, you can take a look at a blog I wrote several months ago – IC DISC - Tax Savings Through Exporting
Let’s take a look.
IC-DISC Set Up & Administration
While setting up a corporation is relatively easy and painless, there are some nuances related to setting up an IC-DISC that are critical to success:
State of Incorporation – Does it matter which state your new entity is incorporated in? It actually does matter and can streamline your annual process as well as fees dramatically. Some states treat an IC-DISC differently than others so understanding proper incorporation can make a significant difference. Make sure your team understands not only the correct state to incorporate in but why.
Corporate Structure – Have you set up the ownership structure of the IC-DISC properly? It could depend on your goals, the number of individual owners in the related supplier, other controlled entities, etc. Should the IC-DISC be owned directly by the related supplier or by individuals that own the related supplier?
Capitalization – While it may seem minor, it is important to open a bank account in the name of the new IC-DISC and contribute $2,500 as capital.
IC-DISC Election signed, sealed and filed on time – you must file your election within 90 days of setting up your new corporation. Our advice is always to file the election sooner rather than later. We have had instances where the IRS has “misplaced” the election form so return receipt is also highly advisable.
Related Supplier Agreement – Does your related supplier agreement meet the requirements stated in the Internal Revenue Code and Regulations?
Many of these issues should be discussed with an expert in IC-DISCs as well as having a corporate attorney involved in drafting the documents.
NOTE: If the tax consulting firm (or CPA) does not involve an attorney in the set up your IC-DISC, it should be a red flag.
NEXT WEEK: Choosing an IC-DISC Consultant (Part 2) will discuss the very important issues related to optimizing the tax benefit of an IC-DISC as well as questions that should be asked when interviewing potential IC-DISC experts.
What say you my friends?
Are you exporting products or services outside the US? If so, are you using an IC-DISC?
How much of the information above does your consultant know and understand?
Is your IC-DISC tax return 500+ pages? If not, are you sure you are optimizing your tax benefit?
Other Noteworthy Articles
IC-DISC Basics: Defining IC DISC Revenue, Assets and Capitalization
IC-DISC – What is qualified export property? (Part 1)
Free Resources
IC DISC Frequently Asked Questions
Click Here to Subscribe to Tax Incentives! Our Monthly Newsletter
IC-DISC – IRS Audit Techniques Guide
Randy Eickhoff, CPA is President of Acena Consulting. With more than 20 years of tax and consulting experience, Randy focused on helping companies successfully document and secure tax incentives throughout the US. He has been a long-time speaker nationally as well as conducted numerous training sessions on R&D tax credits and other US tax incentives.
