IC-DISC is Alive and Well– February 01, 2013 by Ray Polantz

For years, exporters have benefited from the Interest Charge Domestic International Sales Corporation (IC-DISC) structure, which for many taxpayers provides permanent tax savings due to the reduced tax rate on qualified dividends. However, those reduced rates were in danger of being eliminated by the fiscal cliff, which meant many businesses exporting goods were also in danger of losing the tax benefits associated with an IC-DISC. The uncertainty also caused many companies to hold off on setting up new IC-DISCs.
Thanks to the American Taxpayer Relief Act, the preferential tax rate on qualified dividends was extended, thereby extending the benefits of the IC-DISC structure. For 2013, qualified dividends are taxed at:
  • 15% for individuals with income below $400,000 or $450,000, depending on filing status; and
  • 20% for individuals with higher incomes.
Beginning in 2013, taxpayers with income above $200,000 or $250,000, depending on filing status, may also be subject to a 3.8% Medicare tax on dividend income. (Read New Medicare Tax Takes Effect in 2013.). Even if the new Medicare tax is applied in addition to the qualified dividend rate, the resulting tax rate in most cases is still much lower than that on ordinary income.
The moral of the story? The IC-DISC structure still represents a tremendous potential tax benefit for small- and medium-sized exporters.
For more information, contact Ray Polantz at rpolantz@cohencpa.com.
This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.
Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.