Exporter benefits: exploring the tax benefits of IC-DISCs.

tax law loves ;1 good acronym. and sometitt les 14 good reason, It's much easier In s.tv "1C-DISC'. "interest charge--domestic it Iternational sales corporation.'"

An IC-DISC is the least talked about but most potent all tax shelters. if Vu happen to be an export, VI IC-DISC is a U.S. corporation that exists and [Unctions entirely on paper. ICs either a subsidiary or a sister company of a U.S. exporter, to which the exporter either pays a commission or sells its products (which are then exported by the IC-DISC). The U.S. exporter's business partners need not be aware of the IC-DISC's existence. K.:-DISC rules allow an exporter to either convert ordinary income into a qualifying dividend, or indefinitely defer U.S. income taxation on 50 percent of its net income Erna] the first SIO million in foreig-n sales. It's a significant tax benefit available to any business that exports: movie producers, software developers, architects. engineers and manufacturers.

IC-DISC Qualification

To qualify as an 1C-DISC a U.S. corporation must mi 'et the following:

* Be organized in a U.S. state;

* Have at least 95 percent If its gross receipts consist of qualified export receipts;

* The adjusted basis of its qualified export assets at the eh Ise of the taxable yrar must equal or exceed 95 percent of the sum of the adjush

* cl basis of all assets of the corporation at the close of the I axable year;

* It does not have more than one class If stock. and the par or stated value of its outstanding stock is at least S2,500 on each day of the taxable year;

* It must make an election within 90 clays of the first tax year in be treated as a DISC by filing IRS Form ,18711-A and receiving consent of all shareholders an existing corporation must elect within 90 clays prior to the start of the new tax wart;

* Nlaintain separate books and records:

* Is an eligible corporation tax exempts. S corps and certain other corporations cannot lx DISCs: and Is not ii the same control group as a foreign sales corporatii in. IRC Sec. 992 and Treas. Reg. Sections 1.992-1 and 2. Al! Code references are to the Internal Revenue Code of 1984 as set forth in Title 26 of the United States Code).

Qualilied export receipts are defined in IRC: Sec. 993(a) I to include receipts and services related to such receipts from the sale. exchange. lease or rent of export property. Services telated to the sale. exchange, lease or rent of export property may include warranty. maintenance, repair and...