How An IC-DISC Can be Used to Defer Tax On Commissions Related to $10 Million of Export Sales Per Year
By Anthony Diosdi In 1971, Congress enacted the domestic international sales corporation (“DISC”) in an attempt to stimulate U.S. exports. A DISC allowed a U.S. exporter to avoid U.S. tax on a portion of its export profits by allocating those profits to a special type of domestic subsidiary known as a DISC. In 1984, Congress enacted the foreign sales corporation (“FSC”) provisions as a replacement for the DISC regime. A domestic corporation that established a FSC allocated a portion of its qualified export profits to the FSC and a pre-specified portion of the FSC’s profits were exempt from U.S. tax. The net effect of this arrangement was that a portion of a domestic corporation’s export profits was permanently excluded from U.S. tax at both the FSC and U.S. shareholder levels.…