Interest Charge-Domestic International Sales Corporation (IC-DISC)
The IC-DISC is the last surviving federal income tax incentive for U.S. companies that have products or services delivered outside of the United States. The IC-DISC is a separate legal entity and S-Corporations, individuals and partnerships are eligible to be shareholders.
The recent passage of the American Taxpayer Relief Act of 2012 provides permanence for the IC-DISC. As such, the IC-DISC provides a permanent federal income tax reduction to the shareholders of the IC-DISC. This permanent tax savings is realized when the exporting company deducts the commission it pays to the IC-DISC from its ordinary income. This commission would typically be deductible at 39.6 percent. IC-DISC is a tax-exempt entity, and a 23.8% percent tax is paid on qualified dividends to the shareholders of the IC-DISC. Thus, a reduction in federal income taxes from 39.6% to 23.8% on qualified export sales is realized.