IC-DISC

What is an IC-DISC?The IC-DISC, or Interest-Charge Domestic International Sales Corporation, is the

only Congressionally endorsed export tax benefit remaining in the Internal Revenue

Code. For nearly all companies with export sales, setting up an IC-DISC can deliver

significant tax savings.

Assuming maximum tax rates apply, an IC-DISC

can help an exporter realize a permanent tax

savings for the difference between the ordinary

tax rate and the capital gains rate – usually at

least 15%. This is accomplished by creating a

separate “paper” entity typically owned by

the export company or the same individuals

as the export company. Unfortunately, only

export sales made after formation of the

IC-DISC will qualify, so time is critical.

COMMISSIONU.S.

EXPORTER IC-DISC

TAX SA

VINGS

OWNER (S)

OWNER (S)

DIVIDEND

IC-DISC FACTSHEET

▲

How Does it Work?The best way to illustrate this main benefit of an IC-DISC is through an example:

Learn MoreThere are a number of considerations and benefits that should be explored before implementation of this tax strategy.

To learn more about how an IC-DISC can specifically help your company, please contact your AGH advisor at (316) 267-7231

or tax vice president John Trowbridge at (316) 291-4171 or john.trowbridge@aghlc.com.

Tax SavingsCOMBINED EXPORTER IC-DISC WITHOUT

IC-DISC

Foreign trading gross receipts $5,000,000

Export net income $350,000 $350,000 $350,000

IC-DISC (Greater of):

1. 50% of export net income $175,000

2. 4% of export gross receipts $200,000

IC-DISC commission: $200,000 $200,000

Tax base after IC-DISC commission $150,000 $200,000 $350,000

Tax rate 39.6% 23.8% 39.6%

Tax paid $107,000 $59,400 $47,600 $138,600

IC-DISC net tax savings: $138,600 - $107,000 = $31,600 (or $200,000 x 15.8%)

301 N. Main, Suite 1700 ▲ Wichita, Kansas 67202-4868

(316) 267-7231 • info@aghlc.com ■ ww.aghlc.com

STEP 1: A U.S. producer/exporter (exporter) creates

an IC-DISC by forming a corporation, then electing that

it be a tax-exempt IC-DISC. The IC-DISC doesn't have

any hard assets other than a minimal amount of cash

or other qualified export assets. In form, the DISC is

an export sales representative for the exporter.

STEP 2: Exporter pays the IC-DISC a commission

on export sales which is the greater of:

1. 4% of qualified export sales or;

2. 50% of the net income from qualified

export sales.

STEP 3: Exporter deducts the commission from its ordinary

income. Let's assume that exporter (or more likely, its

owners) is taxed at the highest federal rate of 39.6%.

STEP 4: IC-DISC pays a dividend to its shareholders

equal to the commission it received. The IC-DISC pays no

federal income tax.

STEP 5: IC-DISC shareholders (top-bracket individuals)

pay 23.8%, including the new Medicare tax, on the qualified

dividends received from the IC-DISC, resulting in permanent

tax savings of 15.8% on the amount of the IC-DISC commission.

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301 N. Main, Suite 1700 ▲ Wichita, Kansas 67202-4868

(316) 267-7231 • info@aghlc.com ■ ww.aghlc.com