IC-DISC Studies

Since 1971, Congress has encouraged U.S. companies to export and take advantage of export tax incentives through the use of an IC-DISC. Congress revised these rules in 1984 to be World Trade Organization (WTO) compliant. Despite the repeal of other export tax incentives such as the Extra-territorial Income Exclusion (ETI), the IC-DISC will survive as the last remaining WTO compliant export tax incentive.

An IC-DISC is a domestic corporation that is tax exempt. It must satisfy a gross receipts and assets test concerning export activity. Generally, it acts as a commission agent for a related-party exporter, but can also act as a distributor. There are capitalization requirements and election procedures as well as shareholder-ownership restrictions, but generally it is owned by the related export company or some or all of its shareholders.

 To reap the benefits, a related-party exporter computes, under several alternatives, either a deductible commission or transfer price for export transactions. The reduced export profits yield a tax benefit to the exporter and income to the IC-DISC. Income from the IC-DISC can be invested in specific government securities or loaned to the export company. To the extent retained, the shareholder obtains a deferral subject to an interest charge. When distributed, the shareholder recognizes a taxable dividend.

To help maximize your export tax incentives, we will work with you on the following tasks: