IC-DISC Implementation and Annual Compliance

Benefitting from U.S. Tax Code Export Incentives

The Interest-Charge Domestic International Sales Corporation (or IC-DISC) remains one of the only (and long-standing) export incentives under the U.S. tax code. It can create both long-term permanent and deferral benefits (depending on the scenario) and while seemingly easy to implement via an election, it comes with ongoing risk and the need for annual planning and maintenance.

Taxpayers have two critical junctures when pursuing this strategy: (1) the initial implementation and (2) the on-going annual compliance requirements and related administration.

Our IC-DISC Implementation Services Include

(1) Initial Implementation

Implementation Assessment

We will assist with the implementation and design of an IC-DISC structure to reduce federal income tax on qualifying export income, including entity formation, the IC-DISC election, and transfer pricing methodologies for pricing the commission payable by the exporter.

We will first collaborate with you to assess the eligibility and potential benefit of pursuing an IC-DISC arrangement, which includes the following:

(a) Identifying and qualifying export revenue;
(b) Reviewing the product mix and associated pricing;
(c) Estimating the annual tax benefit from the use of the IC-DISC;
(d) Confirming the shareholder eligibility.

We will validate these findings through the production of a benefit assessment summary with a go/no-go recommendation based on our findings.

Implementation Assistance and Structuring of Methodology

Assuming we move forward with implementation after the assessment, we will assist with the following substantive areas related to the overall operation of the arrangement:

We will review the structure of the IC-DISC arrangement based upon the client's facts including whether a commission or gross receipts method is most viable. We will also consider the overall ownership structure in light of the taxpayer, along with payment timing considerations and cash flow mechanics.
Our transfer pricing specialists will assist with the selection and assessment of the appropriate pricing methodology.
We will coordinate entity formation with attorneys and prepare and file the IC-DISC election with the IRS. We will also work with you to establish appropriate accounting mechanics to track the export sales between the taxpayer and the IC-DISC.

The Deliverable will constitute our summary of findings but also a detailed listing of ongoing compliance requirements, commentary on annual IC-DISC dividend strategy and annual process for commission booking and settlement. This will all be documented in an implementation memorandum with a timeline and roadmap for easy processing.

On-Going Annual Compliance

IC-DISC Annual Compliance & Administration

After initial set-up and election this recurring annual service adds real value because failure to comply with basic requirements can result in the termination of the election.

We perform the annual IC-DISC commission calculation and prepare the associated IC-DISC return (on Form 1120-IC-DISC). If any deferred interest charges are applicable, we compute these as well. Our ultimate annual summary memorandum provides an audit-ready file for review by the IRS.