Businesses that directly exports goods they manufacture in the U.S., provide services used outside the U.S., or manufacture parts used in assembly outside the U.S. can take advantage of the IC-DISC.

Opportunity: It is an incentive for these taxpayers to export more goods and services outside the U.S. with lower tax rates.

Implementation: A U.S. manufacturer (or service provider such as an architect or engineer) exports goods to a commonly owned legal entity (e.g the IC-DISC). The U.S. entity pays the IC-DISC a commission and is able to deduct this amount from its taxable income at ordinary rates. The IC-DISC’s income (e.g. the commission from the U.S. entity) is then taxed at 15%, as “qualified dividend income” when it is paid to its owners. The types of entities to be formed, the determination of the commission, and the nuts and bolts of the operation of the IC-DISC can be complicated to set up. All of these factors are discussed and individualized upon consultation with our experts.

Result: The resulting rate arbitrage and the ability to time the dividend create significant tax savings opportunities. This idea works best with closely held organizations.