Example Title Screen

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Example Title Screen 1
Interest Charge Domestic International Sales
Corporation (IC-DISC) Strategy

• Example Sub Title

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IC-DISC Strategy Overview

• What is an IC-DISC?
• Domestic C-corporation typically incorporated in
  Nevada
• Owned by C-corporation or individuals
• Deemed to perform export services on behalf of
  supplier/exporter
• Receives commissions from supplier/exporter for
  export services

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IC-DISC Strategy Overview (continued)

• What is an IC-DISC?
• Pays dividends to shareholders
• Has its own financial statements and bank account
• Not a tax shelter
• Has resisted challenges of WTO
• Available export incentive even after repeal of
  EIE and FSC

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IC-DISC Strategy Diagram of Structure

• Diagram provided by Export Assist, Inc.

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IC-DISC Strategy Background

• Most companies can increase their after-tax cash
  flow by incorporating an IC-DISC rather than
  taking an ETI exclusion.
• After repeal of ETI exclusion, the IC-DISC is the
  only option available to obtain export tax
  benefits. Concept has existed since 1970s.
• Structure takes advantage of lower 15 tax rate
  on dividends.

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IC-DISC Strategy Background (continued)

• A company is allowed to allocate to the IC-DISC
  up to 50 of its income or 4 of qualified export
  receipts from qualifying export profits.
• A commission is charged by the IC-DISC to the
  exporter (i.e. exporter entitled to deduct
  commission on its federal income tax return).

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IC-DISC Strategy Background (continued)

• IC-DISC does not pay any federal income tax on
  its taxable income from the export sales. It
  takes the profits and pays a dividend to the
  exporters shareholders that is taxed at the
  shareholders rate of 15.
• IC-DISC must make periodic distributions to avoid
  deemed dividend and interest-charge rules.

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IC-DISC Strategy Background (continued)

• Shareholders of IC-DISC can achieve one-year
  interest and tax deferral on the IC-DISCs
  taxable income attributable to up to 10M of
  qualified export receipts.
• Any taxable income attributable to qualified
  export receipts that exceed 10M treated as a
  deemed distribution.

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IC-DISC Strategy Calculation of IC-DISC
Commission Income

• IC-DISC able to calculate commission income under
  the following methods (whichever is greater)
• 4 of gross receipts method. Commission cannot
  exceed sum of 4 of qualified export receipts of
  IC-DISC plus 10 of export promotion expenses.
• 50 of combined taxable income method.
  Commission cannot exceed 50 of the combined
  taxable income of supplier and IC-DISC plus 10
  of export promotion expenses.
• IC-DISCs taxable income based on the actual
  sales price, subject to adjustments under IRC
  482.

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IC-DISC Strategy Qualifications

• To qualify as an IC-DISC, a corporation must meet
  the following qualifications
• Must be an actual, eligible U.S. corporation
• At least 95 of its gross receipts for the
  taxable year must be qualified export receipts
• At least 95 of the adjusted basis of its assets
  must be the basis of qualified export assets
• The corporation cannot have more than one class
  of stock and the par or stated value of that
  stock must be at least 2,500
• An IC-DISC election, made with the consent of all
  the shareholders, must be in effect for the
  taxable year (Form 4876-A).

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IC-DISC Strategy Qualifications (continued)

• Qualified Export Receipts are receipts from
  sales of export property that are manufactured in
  the US by the supplier and sold for direct
  consumption or disposition outside the US, or to
  an unrelated person for delivery outside the US
  with no more than 50 of the FMV of the property
  being attributable to articles imported into the
  US.

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IC-DISC Strategy Qualifications (continued)

• Qualified Export Assets include A/R arising out
  of sales in which the IC-DISC is the principal
  agent, money, bank deposits, and producers
  loans. A producers loan is a loan of an
  IC-DISCs accumulated tax deferred profits back
  to its US parent manufacturing company. The loan
  amount cannot exceed the amount of the borrowers
  assets related to its export sales.

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IC-DISC Strategy Operation of IC-DISC

• The ownership of the IC-DISC does not have to
  mirror the ownership of the supplier.
• Commission agreement between supplier and IC-DISC
  must be executed with assistance from Counsel.
• Separate bank account and books and records must
  be maintained.
• Annual financial statements must be prepared.
• Cash payments must be made from supplier to
  IC-DISC pursuant to the commission agreement.

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IC-DISC Strategy Implementation

• Provide the following assistance in first year of
  implementation
• Prepare IC-DISC election.
• Prepare sample Commission Agreement for counsel
  to review/modify and assist company with
  execution of agreement.
• Prepare sample journal entries for recording
  transactions between supplier and IC-DISC.
• Prepare technical memorandum that summarizes tax
  implications to company for setting up IC-DISC.
• Calculate commission income using the appropriate
  method that maximizes tax benefit.
• Prepare Federal income tax return for IC-DISC.
• Calculate commission income and prepare Federal
  income tax return for subsequent years.

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IC-DISC Strategy Next Steps

• Determine appropriate ownership structure and
  obtain shareholder consent.
• Incorporate IC-DISC, including by-laws, articles
  of incorporation, minutes and issues of stock
  certificates.
• Make valid IC-DISC election.
• Open bank account for IC-DISC.

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