Exploring IC-DISC: Your Comprehensive Guide

Introduced by Congress in 1971 to stimulate U.S. exports, Interest Charge Domestic International Sales Corporations (IC-DISCs) remain a robust tax planning tool. They offer substantial permanent tax savings and deferral opportunities for American companies, underscored by recent tax reforms preserving preferential treatment for qualified dividends and long-term capital gains.

How IC-DISC Works

An IC-DISC acts as a commission agent for a U.S. company’s export income. The commission paid to the IC-DISC is deductible for the U.S. company, reducing its taxable income. When the IC-DISC distributes dividends to its shareholders, these are taxed at lower capital gains rates, creating enduring tax savings. Moreover, deferring federal income tax on export earnings until distribution further enhances cash flow.


Various types of businesses can qualify for IC-DISC benefits:

  • Direct Exporters: Companies exporting goods they manufacture.
  • Architectural and Engineering Services: Firms providing services for projects outside the U.S.
  • Indirect Exporters: Businesses using U.S. distributors in their export supply chain, subject to specific regulatory conditions.

Benefits of IC-DISC

Beyond tax savings, IC-DISC offers:

  • Increased Liquidity: Converts taxable income into qualified dividends, taxed at lower rates.
  • Reduced Cost of Capital: Allows earnings retention and financing at lower costs.
  • Incentives for Management: IC-DISC stock can be used for employee compensation.
  • Estate Planning Advantages: Facilitates tax-efficient wealth transfer across generations.

Tax Advantages

Key benefits include:

  • Tax Deferral: Postpones tax obligations on export income until dividends are distributed.
  • Lower Tax Rates: Dividends from IC-DISCs are taxed at qualified rates, reducing overall tax liability.
  • Permanent Tax Savings: Differential tax treatment between deductible commissions and dividend income creates lasting tax benefits.

Setting Up an IC-DISC

Establishing an IC-DISC involves:

  • Incorporating in a chosen state.
  • Filing necessary documents with the IRS.
  • Electing IC-DISC status within 90 days of incorporation.
  • Maintaining separate financial records.

For personalized guidance on IC-DISC setup or to explore other export tax strategies, contact us at mmiller@tglobaltax.com. Maximize your company’s tax efficiency and export potential today.

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