Tax Analysts provides news, analysis, and commentary on the interest charge domestic international sales corporation (IC-DISC) tax regime, formerly known as the domestic international sales corporation (DISC) tax regime. In 1984, the DISC tax regime was repealed after U.S. trading partners argued that it was an illegal export subsidy in violation of the General Agreement on Tariffs and Trade and replaced by the IC-DISC tax regime.

Under section 991, an IC-DISC is not subject to federal income tax on profits from exported property and services. A corporation must elect and otherwise satisfy the conditions under section 992 to be treated as an IC-DISC. In general, an IC-DISC is a domestic corporation that derives 95 percent or more of its qualified gross receipts (as defined in section 993(a)) from services, and the sale, exchange, lease, rental, or other disposition of property, exported outside of the United States. The adjusted basis of qualified export assets (as defined in section 993(b)) held by the IC-DISC must equal or exceed 95 percent or more of the adjusted basis of all of its assets measured at the close of the tax year. The IC-DISC may only have one class of stock and the par or stated value of outstanding stock must be at least equal to $2,500 on each day of the tax year.

IC-DIC shareholders, however, are subject to income tax on actual or deemed distributions from the IC-DISC. The distributions are treated as qualified dividend income under section 1(h)(11), which in 2015 is taxed at preferential tax rates. An IC-DISC allows shareholders to defer the recognition of up to $10,000,000 of annual income derived from exported property and services. Under section 995(f), shareholders must pay an interest charge on their share of IC-DISC-related deferred tax liability. For additional information, see the IRS IC-DISC audit guide.