Domestic International Sales Corporation (IC-DISC) Agriculture Industry
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Domestic International Sales Corporation (IC-DISC)Agriculture Industry
Domestic International Sales Corporation (IC-DISC)
Who Can Benefit? Growers Farmers Processors Suppliers Cooperatives and others associated with
agriculture
IC-DISC is available even if your company is not the ultimate producer or exporter of the goods or services.
Common IC-DISC Structure (without cooperatives)
Farmers
IC-DISC without Cooperatives
Operating Company
(S Corporation)
IC-DISC(C Corporation)
Foreign Customer
Qualified Export Sales
Deductible Commission(Offset income taxed at 39.6%)
Qualified Dividend(Taxed at 15% -23.8%)
Tax Benefit of IC-DISC
Tax Consequence
No federal level tax on the DISC.
Tax deferred until income is distributed (but regularly distributions
often necessary).
Shareholders pay interest on the deferred income. Tax Arbitrage
Convert ordinary income into qualified dividend taxed at
preferential rates when distributing to shareholders.
Setting up the IC-DISC
Form a US C corporation ‒ Only have one class of stock ‒ Choose an IC-DISC friendly State
Electing IC-DISC Treatment ‒ Form 4876-A must be filed with the IRS within 90 days of the beginning of
the IC-DISC’s taxable year for the election to apply to such year.
Entering into a Commission Agreement ‒ The permitted commission rate is set by statute, and is generally limited
to the greater of: 4% of the exporter’s qualified export receipts, subject to certain
limitations; or 50% of the exporter’s taxable income attributable to qualified export
receipts.
Maintaining the IC-DISC Status
95% qualified gross receipts test
‒ I.R.C. §993(a)
95% qualified export asset test
‒ I.R.C. §993(c)(1)(B)
‒ REV. RUL. 77-484, 1977-2 C.B. 289
$2,500 capital at all times
Timely payment of commissions
Annual Filings
Books and Records
Challenges for IC-DISC with Cooperative Entities
Farmers
Operating Company
(S Corporation)
IC-DISC(C Corporation)
Foreign Customer
Qualified Export Sales
Deductible Commission(Offset income taxed at 39.6%)
Qualified Dividend(Taxed at 15% -23.8%)
Model A
Cooperative Entity
Domestic Sales DomesticCustomer
Profits
Products
REV. RUL. 77-484• IC-DISC failed the destination test for “qualified export sales” if the
product is commingled with other fungible product acquired by the cooperative from other farmers, and cannot be traced to the export sale.
• The IRS IC-DISC Audit Guide suggests that the destination test can be satisfied if the cooperative set up systems for segregation under the FSC regulations.
Challenges for IC-DISC with Cooperative Entities
Farmers
IC-DISC(C Corporation)Foreign
Customer
Deductible Commission(Offset income taxed at 39.6%)
Qualified Dividend(Taxed at 15% -23.8%)
Cooperative Entity
Qualified Export Sales
Model B
DomesticCustomer Domestic Sales
Uncertainty created by Subchapter T of the I.R.C• Cooperatives are allowed
deductions for certain distributions to its members.
• It is unclear if the “combined taxable income” upon which the commission is determined would take into account the deductions.
Farmers have two stream of taxable income • One from the cooperative. • One from the partnership. • It adds complexity to the tax
accounting treatment for the two revenue streams.
Partnership
PALO ALTO1717 Embarcadero
RoadPalo Alto, CA 94303
LOS ANGELES11150 Santa Monica
Blvd.Suite 1200
Los Angeles, CA 90025
SAN FRANCISCO135 Main Street
12th FloorSan Francisco, CA 94105
Palo Alto Office: 650-813-9700
CONTACT US
www.rroyselaw.com
@RoyseLaw
MENLO PARK149 Commonwealth Drive,
Suite 1001Menlo Park, CA 94025
LOS ANGELES445 S Figueroa St
31st Floor Los Angeles, CA 90071
SAN FRANCISCO135 Main Street
12th FloorSan Francisco, CA 94105
Menlo Park Office: 650-813-9700
CONTACT US
www.rroyselaw.com@RoyseLaw
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