What are Interest-Charge Domestic International Sales Corporations (IC-DISC's)
Interest-Charge Domestic International Sales Corporations (IC-DISC’s) are domestic corporations formed to export U.S. products. IC-DISC provisions, set forth in the Deficit Reduction Act of 1984, provide limited incentives to small U.S. exporters. To be an IC-DISC, a corporation must be organized under the laws of a State or the District of Columbia. Parent shareholders—generally, other corporations, individuals, partnerships, trusts, or estates—form an IC-DISC by filing Form 4876-A, Election to be Treated as an Interest-Charge DISC. This election is considered to be in effect as long as the IC-DISC meets the following requirements: (1) at least 95 percent of the IC-DISC’s total receipts are “qualified export receipts;” and (2) at least 95 percent of the adjusted basis of the IC-DISC’s total assets are “qualified assets”. An IC-DISC that does not meet the gross receipts test during the tax year will still be considered to have qualified if, at the end of the tax year, the IC-DISC distributes the portion of its taxable income attributable to gross receipts that are not qualified export gross receipts. Similarly, an IC-DISC that does not meet the qualified export asset test during the tax year will still be considered to have qualified if, at the end of the tax year, it makes a distribution equal to the fair market value amount of the nonqualified assets.
An IC-DISC is also required to have only one class of stock, conform its tax year to that of the principal shareholder, and maintain separate books and records.
Certain types and amounts of IC-DISC income are subject to tax-deferral; the IC-DISC entity itself is not taxed. Instead, IC-DISC shareholders are taxed when the income is either actually distributed or “deemed” distributed. The IC-DISC is required to: (1) calculate the tax-deferred portion of its “taxable income” each year; (2) accumulate the tax-deferred income for the current tax year and prior tax years in a separate account; and (3) report the total accumulated amount of tax-deferred income to its shareholders each year. The IC-DISC shareholders must then pay an interest charge on their share of IC-DISC-related deferred tax liability. This interest charge is determined using a compounded annual rate of interest equivalent to the average investment yield of U.S. Treasury bills with 52-week maturities. The interest charge is computed by IC-DISC shareholders on Form 8404, Computation of Interest Charge on DISC-Related Deferred Tax Liability.
IC-DISC taxable income that does not qualify for tax-deferral is “deemed” distributed to shareholders as a dividend in the tax year in which it is earned, regardless of whether the income is actually distributed to shareholders or retained by the IC-DISC. Types of income not eligible for tax-deferral include: taxable income derived from excess qualified export receipts; certain gains from the sale or exchange of assets; one-half of IC-DISC taxable income attributable to the sale or exchange of military property; “international boycott income;” illegal bribes and kickbacks; and foreign investment attributable to “producer’s loans.” Excess qualified export receipts are gross receipts in excess of $10 million, a limitation that was intended to restrict IC-DISC activity to smaller businesses.
Please visit SOI Tax Stats - FSC's/IC-DISC's Statistics for data tables and articles from this study.
Metadata on SOI Tax Stats - Interest-Charge Domestic International Sales Corporations (IC-DISC) by Year