What is a disc payment?
Taxpayers can use an interest charge domestic international sales corporation (IC-DISC) to obtain a tax incentive available to manufacturers, producers, resellers, and exporters of goods that are produced in the United States with an ultimate destination outside the United States.
How is IC-disc commission calculated?
How is the IC-DISC commission calculated? The sales commission paid to the IC-DISC is calculated using one of three permissible methods: (1) 4% of qualified export receipts; (2) 50% of the combined taxable income from export sales; or (3) the arm’s length amount determined under section 482.
What is an IC-DISC return?
Form 1120-IC-DISC is an information return filed by interest charge domestic international sales corporations (IC-DISCs), former DISCs, and former IC-DISCs. What Is an IC-DISC? An IC-DISC is a domestic corporation that has elected to be an IC-DISC and its election is still in effect.
What are IC-DISC distributions?
The Interest Charge Domestic International Sales Corporation (IC-DISC) offers significant Federal income tax savings for making or distributing US products for export. The IC-DISC was originally created by Congress to promote export sales by allowing companies to defer income, with interest charged on the deferred tax.
How do I report an IC distribution?
Copy B of Schedule K (Form 1120-IC-DISC) reports an actual or deemed distribution from an IC-DISC, former IC-DISC, or former DISC. It also reports deferred DISC income from an IC-DISC. Keep it for your records; do not file it with your income tax return.
Are IC-DISC dividends subject to NIIT?
Tax Benefit 15.8% permanent tax savings by converting ordinary income into qualified dividend income (subject to NIIT).
Who can own an IC-disc?
If your company is a pass-through entity—such as a partnership, S corporation, or LLC—you can form an IC-DISC as a subsidiary. Dividends that the IC-DISC distributes to your company will retain their character and be passed through to individual shareholders and qualify for the 20 percent rate.
Are IC-DISC dividends qualified?
The IC-DISC, as a tax-exempt entity, pays no federal tax on the commission income. When the IC-DISC distributes its income to its shareholders, their dividend income is taxed at the qualified dividend rate of 20 percent.
Who can own IC-disc?
Is an IC-disc AC Corp?
An IC-DISC is a legal entity organized as a C corporation that, in most cases, is deemed to act as a sales commission agent for a U.S. manufacturer or distributor that exports U.S.-made products. For an entity to be treated as an IC-DISC for federal income tax purposes, IRS approval is required.
What is an IC-disc and how is it taxed?
An IC-DISC is a separate entity that earns a “commission” on the operating company’s export sales based on the greater of 4% of gross receipts from sales of qualified export property. A properly executed IC-DISC isn’t taxable at the entity level.
Can a flowthrough exporter establish an IC-disc?
A flowthrough exporter can establish an IC-DISC that it owns directly. The commission the exporter pays to the related IC-DISC is deductible as an expense and yields a federal tax benefit to the exporter’s individual owners at their applicable ordinary income tax rates.
How do you reduce the cost of capital in an IC-disc?
Supply ongoing financing to reduce cost of capital. An IC-DISC is not required to distribute all commission income to shareholders. In some cases, income can be loaned back to the exporter creating tax deferment and working capital. Create management and employee incentives for IC-DISC shareholders.
How is Form 1120 IC-disc processed at Covington service center?
Once received by the Service Center, all Forms 1120 IC-DISC are first processed in the Covington Service Center’s Document Perfection (“Code & Edit”) section. Code & Edit ensures that the Form 1120-IC-DISC is complete and determines if the corporation is an eligible DISC filer (approved Form 4876-A on file, etc., (IRM 3.11.16)).