The last export incentive, an IC-DISC is a US corporation with specific requirements that can provide dramatic tax savings for companies exporting products and services. Today, we will look at the statutory requirements for an IC-DISC as defined in the tax regulations (IRC Regulation Sections 991-997).
What is the definition of an IC-DISC?
A “DISC” refers to a domestic, international sales corporation. As defined under IRC Regulations Section 1.992-1, a “DISC” means a corporation that meets the following requirements:
- Incorporated and existing under the laws of any State or the District of Columbia,
- Satisfies the gross receipts test,
- Satisfies the gross assets test,
- Satisfies the capitalization requirements,
- Makes a valid election be treated as a “DISC,”
- Maintains separate books and records, and
- Is not an “ineligible” corporation.
What cannot be a DISC?
Associations and corporations that are organised in or under the law of a US possession of the United States cannot qualify as a DISC. Even if an Association is taxed as a corporation, it cannot qualify as a DISC.
Taxation of a DISC
Under IRC Regulation Section 1.991-1, a DISC is not subject to corporate income tax, the minimum tax preference items (also known as the dreaded AMT) or the accumulated earnings tax. This creates an opportunity for companies delivering products or services outside the US to realise a permanent tax savings on their export sales.
In our next article on IC-DISC Basics
Next week we will dive deeper into the definitions of the gross receipts, gross assets and other terms listed above. In the coming weeks, we will also explore the definitions related to qualified exports, commission agreements and producer loans. We hope you will stay tuned.
What say you, my friends?
Are you currently delivering products of services outside the US?
Does your growth strategy include new markets outside the US?
Other than exporting products, are there other tax incentives you may be eligible for?
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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.