2018 Q3 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

• Report income tax withholding and FICA taxes for second quarter 2018 (Form 941), and pay any tax due. (See the exception below, under “August 10.”)

• File a 2017 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

• Report income tax withholding and FICA taxes for second quarter 2018 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 17

• If a calendar-year C corporation, pay the third installment of 2018 estimated income taxes.

• If a calendar-year S corporation or partnership that filed an automatic six-month extension:

• File a 2017 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.

• Make contributions for 2017 to certain employer-sponsored retirement plans.

© 2018

How materiality is established in an audit or a review

When accountants conduct an audit or review, they can’t test every transaction. Instead, they set a “materiality” threshold. Several definitions of materiality exist. But the universal premise is that a financial misstatement is material if it could influence the decisions of financial statement users. To establish the right level of materiality, auditors rely on rules of thumb, apply professional judgment, and consider the amount and type of misstatement. Contact us for more information on what’s considered material for your business.

Marital Dissolution in Community Property States

The complexity and differences between the community property statutes of the nine mostly western states* that have adopted them have created a tax consulting and preparation quagmire that can intimidate even the most knowledgeable accountants and attorneys.  We will begin by addressing some basic Federal tax implications, and follow up in future posts with valuation issues.


Definition:  “Generally, community property is property that you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or registered domestic partner) are domiciled in a community property state”.  IRS Publication 555.

Continue reading “Marital Dissolution in Community Property States”

Surviving Divorce: Eight Steps to Starting Over

No one ever expects to get to this point.  The anger, deception, frustration and fear have taken over your normally rational mind and you are not thinking clearly.  Your friends, family and work place associates are all experts at telling you what to do, yet they have not been through it themselves and only have few facts relevant to your situation.  The situation creates it’s own momentum and you are confused and unsure of what to do next.  Following are suggestions for getting on track and moving forward.

Continue reading “Surviving Divorce: Eight Steps to Starting Over”

Audit Committee Standards

While there are many requirements and expectations of an issuer’s audit committee, the 1934 Exchange Act under rule 10A(3) mandates five specific standards in order for a company to be listed.

1.  Independence – each member of the audit committee must be a member of the Board of Directors of the listed issuer, and must otherwise be independent:

–  there can be no consulting, advisory or compensatory relationship, outside of that as a member

–  members of the AC can not be affiliated persons as defined of the issuer or any subsidiary.

2.  Responsibility – the audit committee, as a sub-committee of the Board of Directors must be directly responsible for the appointment, consultation with, and retention of the registered independent accounting firm, while including oversight including problem resolution between management and the auditor.

3.  Complaint Resolution – the AC must establish procedures for addressing complaints received by the issuer including anonymous submission by employees.

4.  Advisers – the AC must have the authority to engage advisers, including accountants, auditors, attorneys and consultants they feel are reasonable and necessary to carry out the duties of the committee.

5.  Funding –  the issuer must provide appropriate funding to allow the AC to carry out their duties as a committee of the Board of Directors.

Our experience has been that if there is a failure in meeting the requirements for an audit committee established by the ’34 Act it typically is for one of two reasons:  first, and most common there is often confusion as to who the auditor should be responsible to – the AC or management.  All too frequently, the unofficial role that management can play in the selection of the auditor becomes significant.  Second, is the ‘step-child’ status many audit committees relegate complaint resolution too.  this absolutely can not be the case if the issuer is going to minimize exposure, considering our litigious society.


MD & A Are You Blowing an Opportunity?

As a service to our public company clients we routinely perform an extensive review of the other information included in their annual report.  While  completing a large number of such reviews recently for our clients with December 31 year-ends we became aware of opportunities that are regularly over-looked by issuers.  In preparing Management’s Discussion and Analysis there are some critical elements that will make them more effective.

Attitude – your MD & A is an opportunity to tell the story of the company in a positive way.    As is your web page, your SEC filings are the ‘face’ of the company to potential shareholders, investors and others considering doing business with you.  Do not minimize this opportunity by viewing it primarily as an obligation.  We all have a tendency to spend less time on things we view as ‘necessary evils’ as opposed to ‘opportunities’.

Approach – the primary purpose of the MD & A is to allow the reader to “look at the company through the eyes of management by providing both a short and long-term analysis of the business of the company” (SEC Financial Reporting Policies sec. 501).    The MD & A is intended to be entirely prospective, not historical.  Too frequently we see comments like “As of 12/31/x1 revenues declined $xxx,xxx which was a reduction of x% over revenues of $xxx,xxx as of 12/31/x0”.  That’s historical, not prospective, and anyone could calculate it from the financials.  It provides no additional information of any value to the reader.

 Executive Level Overview – Sec. 501.12 is a gift from the SEC that most issuers don’t open.  This is a chance to tell your story.  Because many companies have become larger, global and more complex, and the disclosure rules correspondingly so,  MD & A has  become lengthy and complex and correspondingly, boring and so not read as thoroughly as it should be.   In an effort to improve clarity and understandability many company’s are incorporating an Executive Level Overview (ELO) as an introductory section  summarizing the most significant areas of the MD & A that management wants to emphasize.  Typically this includes:  economic or industry wide factors; how the company earns revenues and generates cash; lines of business, locations, principle products, services; and provide insight into material opportunities, challenges and risks which management is most focused on.

It is a ‘highlight’ of those things that are important to the company, reported elsewhere as well (e.g. Risk Factors, or Business Description).

Liquidity, Capital Resources, Results of Operations – You must address each of these areas specifically.   When drafting these comments keep in mind that you should address three questions for the reader: (1) What happened? (2) Why did it happen? and most importantly (3) Is it expected to continue?  That last one is the crux of the MD & A.  Remember – the reader is entitled to assume that “past performance is indicative of future performance” unless you tell him different.

Other Tips – (1) If you’ve previously discussed it in your Form 10k you don’t need to keep beating it to death unless it applies to new information in the current interim filing .  Most companies over disclose information that they’ve previously discussed numerous times.  The unwelcome result is that the points you want to make get buried in the irrelevant.  (2)  Discussion for interim reports should be limited to material changes occurring subsequent to the last annual report.  Over disclosure, again,  can result in burying relevant information in the minutiae.  (3) The SEC requires that it be “presented in clear and understandable language”.  That means you need to lose the ‘legalese’.   (4)   In the words of an internationally recognized securities attorney with whom we’ve worked – “Disclosure is too important to leave up to only the attorneys”.  While their focus is compliance, as it should be, this is more than a compliance document.  It is  the public face of your company.  Remember it is an opportunity to ‘sell’ to investors, financiers and those people you want to do business with.  (5)  Finally, sentence structure,  grammar and spelling are critical.  If your MD & A is sloppy, those reading it will assume the company is run the same way.

You have a great company with a great business plan and outlook for the future.  Tell the world in your MD & A.


A Road-map for IRS Audits . . . Schedule UTP has Arrived!

The following is part I of a two part blog post, which will describe the specific reporting requirements of Schedule UTP and discuss the IRS’ objectives and rational for its new reporting requirements. Part 2 will apply the  requirements of Schedule UTP to specific factual situations and reconcile the resulting reporting requirements to those requirements under FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”).

The much anticipated IRS audit road-map, Schedule UTP, is now reality for certain large corporate taxpayers.   Corporations that file Form 1120, U.S. Corporation Income Tax Return, Form 1120-F, U.S. Income Tax Return of a Foreign Corporation and certain insurance companies with assets of more than $100 million must file a Schedule UTP starting in 2010. To view Schedule UTP, click here. To view the IRS instructions to Schedule UTP, click here. Schedule UTP must be attached to a calendar year 2010 tax return or to a fiscal year-end return that begins in 2010 and ends in 2011

The initial reporting threshold of $100 million of total assets will be reduced to $50 million starting in 2012 and to $10 million for the 2014 tax year.  Only a corporate taxpayer or related party that has issued audited financial statements covering all or a portion of the corporation’s tax year is required to file a Schedule UTP.  Compiled or reviewed financial statements are not audited financial statements.

Note that a corporation without audited financial statements is still required to file Schedule UTP if it meets the related party definition.   A “related party” is any entity that has a relationship described in IRC Section 267(b), Section 318(a), or that is included in the consolidated audited financial statements in which a corporation with audited financial statements is also included.

A corporation must report tax positions taken on a U.S. federal income tax return if:

  • The corporation has taken a position on its federal income tax return for the current year or for a prior year, and
  • The corporation or a related party has either
    • Recorded a reserve with respect to that tax position in audited financial statements, or
    • Not recorded a reserve for a tax position because the corporation expects to litigate the position.

A tax position taken on a return is defined as one that would result in an adjustment  to a line item on a return or that would be included in a Section 481(a) adjustment (i.e. a change in a method of accounting) if the position were not sustained on upon an IRS audit. If multiple positions affect a single line on the tax return, each tax position is treated as a separate tax position. A tax position is based on a unit of account used to prepare the audited financial statements in which the reserve has been recorded. The unit of account must be the same unit of account used by the taxpayer in its financial statements for purposes of FIN 48.  If no FIN 48 reserve was required, the tax position need not be reported on Schedule UTP.

The initial FIN 48 reserve for financial statement purposes will trigger the reporting requirement on Schedule UTP. Interestingly, subsequent increases or decreases in the FIN 48 reserve will not require additional Schedule UTP reporting. Additionally, no Schedule UTP disclosure is required with respect to tax positions taken on a return before January 1, 2010, even if a corporation records a reserve for financial statements issued in 2010 or later.

A corporation must report on Schedule UTP a tax position for which it did not record a reserve based on its expectation to litigate the position if: (i) the probability of settling with the IRS is less than 50% and (ii) no reserve was recorded in the financial statements because the corporation intends to litigate the tax position and has determined that it is more likely than not to prevail on the merits in litigation.

Schedule UTP is divided into three parts. In part I, the corporate taxpayer reports tax positions taken in the current year that meet the definition of a UTP disclosure position. Part II is used to report tax positions taken by a corporation in a prior year that has not been reported on Schedule UTP.  Part III is used to provide a concise description of each uncertain tax position reported in parts I and II.

For each UTP, the corporate taxpayer must provide the following information:

  • Identify the Internal Revenue Code section related to each UTP (up to three code sections).
  • Indicate whether the UTP is temporary and/or permanent book-tax difference.
  • If the UTP relates to a pass-through entity (e.g. partnership, S corporation, etc.) the EIN of the pass-through must be reported.
  • Disclosure with respect to those UTPs whose relative size (by amount of dollar reserve) is greater than or equal to 10% of all UTPs listed on parts I and II of Schedule UTP for that tax year.
  • All UTPs on parts I and II must be ranked based on size with the number “1” assigned to the largest, “2” to the next largest, and so on. The letter T must be provided for all transfer pricing related issues and the letter G for all other UTPs.

IRS Commission Doug Shulman announced the following goals of Schedule UTP

  • Create certainty regarding a taxpayer’s obligation sooner rather than later.
  • Cut down on the time it takes that IRS to find issues and complete an audit.
  • Provide consistent treatment across taxpayers.
  • Make efficient use of government resources by focusing on issues the pose the greatest risk of noncompliance.
  • Ensure that both the IRS and taxpayer spend more time discussing the law as it applies to the facts and less time looking for information.
  • Help the IRS prioritize taxpayers for examination
  • Help the IRS identify issues where there is uncertainty and where further guidance is necessary.
  • Help the IRS prioritize selection of issues during an audit.
  • Obtain key information regarding uncertain tax positions without getting into the heads of the taxpayer or their advisors as it relates to quantifying risk.

The practical impact of Schedule UTP is that the affected corporate taxpayer must now carefully consider its FIN 48 analysis and disclosure in conjunction the preparation of Schedule UTP and its defense of its tax position.  In part 2, we will apply the new disclosure requirements to specific factual situations.


Treasury Issues Final Regulations on FBAR Filing Requirements and IRS Releases Revised FBAR Form

On February 24, 2011, the Treasury Department issued final regulations (the “Regulations”) regarding the Report of Foreign Bank and Financial Accounts (“FBAR”). The Regulations, which can be found here, are effective March 28, 2011 and apply to FBARs for 2010 due on June 30, 2011, as well as any FBARs for prior years which were deferred under prior IRS guidance. The Treasury also noted that it plans to permit electronic filing of the FBAR (once technology updates are implemented), but did not announce a specific time frame for electronic filing.

The Regulations (i) addresses the scope of the persons that are required to file reports of foreign financial accounts; (ii) specifies the types of accounts that are reportable; (iii) provides filing relief in the form of exemptions for certain persons with signature or other authority over foreign financial accounts; and (iv) adopts provisions intended to prevent persons subject to the rule from avoiding their reporting requirement.


The Regulations generally require a US person who has a financial interest in, or signature or other authority over one or more foreign financial accounts that have an aggregate value exceeding $10,000 at any time during the calendar year to disclose that interest to the IRS. The disclosure must be made on Form TD F 90-22.1, FBAR, and form must be filed on or before June 30 of each calendar year for accounts maintained during the previous calendar year.  In March 2011, the IRS published a revised FBAR form with accompanying instructions that reflect the changes made by the Regulations.

Key provisions of the Regulations include:

US Person

  • The term US person includes a US citizen, US resident or domestic entity (including, but not limited to a corporation, partnership, trust, or limited liability company). In the case of trusts, a US trustee must file the FBAR for the trust.
  • A legal permanent resident who elects under a tax treaty to be treated as a non-resident for tax purposes must nonetheless file the FBAR.

Financial Interest

The Regulations state that a US person has a financial interest in a bank, securities or other financial account in a foreign country if:

  • The US person is the owner of record or has legal title to the account, regardless of whether the account is maintained for his own benefit or for the benefit of others.
  • A person acts as an agent, nominee, attorney or in some other capacity on behalf of the US person with respect to the account.
  • The account is held by a corporation in which the US person owns directly or indirectly more than 50 percent of the voting power or the total value of the shares.
  • The account is held by a partnership in which the US person owns directly or indirectly more than 50 percent of the partnership’s profits or capital interest.
  • The account is held by any other entity in which the US person owns directly or indirectly more than 50 percent of the voting power, total value of the equity interest or assets, or interest in profits.
  • A trust, in which the US person is the trust grantor and the US person has an ownership interest in the trust for US Federal tax purposes.
  • The account is held by a trust in which a US person either has a present beneficial interest in more than 50 percent of the assets or from which such US person receives more than 50 percent of the current income.

Signature or Other Authority

An individual has “signature or other authority” over a financial account if he (alone or in conjunction with another) has the authority to control the disposition of money, funds or other assets held in the account by direct communication (whether in writing or otherwise) to the person maintaining the account.

The preamble to the Regulations states that the test for determining whether a US person has signature or other authority over an account (and thus a FBAR filing obligation) is whether the foreign financial institution will act upon a direct communication from such US person regarding the disposition of assets in that account. In addition, the preamble to the Regulations clarifies that officers and employees who are obligated to file FBARs because they have signature or other authority over an employer’s foreign financial accounts are not required to personally maintain the records of the foreign financial accounts of their employers.

The officers and employees with signature or other authority over the foreign financial account of the following entities are not required to report that he has signature or other authority over that account as long as he has no financial interest in the account:

  • Banks that are examined by the Office of the Comptroller of Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration;
  • Financial institutions registered with and examined by the US Securities and Exchange Commission (the “SEC”) or the US Commodity Futures Trading Commission;
  • Entities that are registered with and examined by the SEC that provide services to investment companies registered under the Investment Company Act of 1940;
  • Entities with a class of equity securities (or American depository receipts) listed on any US national securities exchange, and US subsidiaries of US entities with a class of equity securities listed on a US national securities exchange if the US subsidiary is identified on a consolidated FBAR report filed by the parent.
  • Entities with a class of equity securities (or American depository receipts in respect f equity securities) registered under section 12(g) of the Securities Exchange Act.

Reportable Foreign Financial Accounts

  • Bank Accounts – A “bank account” is a savings deposit, demand deposit, checking, or any other account maintained with a person that is in the banking business.
  • Securities Account. A “securities account” is an account maintained with a person involved in the business of buying, selling, holding, or trading stock or other securities.
  • Other Financial Account. The term “other financial account” means (i) an account with a person in the business of accepting deposits as a financial agency; (ii) an account that is an insurance or annuity policy with a cash value ; (iii) an account with a person acting as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association; or (iv) an account with a mutual fund or similar pooled fund which issues shares that are available to the general public in addition to having a regular net asset value determination and regular redemptions.
  • The proposed regulations specifically reserved the treatment of investments companies other than mutual funds or similar pooled funds, and the Final Regulations continue to do so. As a result, for the time being, interests in other investment entities such as foreign hedge funds and private equity funds that have periodic redemptions are not considered foreign financial accounts, and therefore FBARs do not have to be filed with respect to such interests.
  • The preamble to the Regulations clarifies that an account is not a foreign account under the FBAR if it is maintained with a financial institution located in the US even though the account may contain holdings or assets of foreign entities. The preamble also clarifies that, in general, the FBAR rules do not apply to omnibus accounts in which a US bank, acting as a global custodian combines the assets of multiple investors and creates pooled cash and securities accounts in non-US markets. The preamble states that as long as the US customer cannot directly access their foreign assets maintained at the foreign institution, the US customer maintains an account with a financial institution located in the US, and therefore will not have to file a FBAR with respect to assets held in the omnibus account and maintained by the global custodian.

Other Special Rules

25 or more Foreign Financial Accounts – A US person that has a financial interest in, or signature or other authority over 25 or more foreign financial accounts is only required to provide the number of financial accounts and certain other basic information on the FBAR report; however, such US person will be required to provide detailed information concerning each account when requested by the IRS.

Consolidated Reports – US entities are permitted to file consolidated FBAR reports on behalf of itself and any entity in which it owns directly or indirectly more than a 50 percent interest.

Participants and Beneficiaries in Certain Retirement Plans – Participants, owners, and beneficiaries in retirement plans under IRC sections 401(a), 403(a), 403(b), 408, and 408A are not required to file a FBAR report for any foreign financial account held by or on behalf of the retirement plan.

IRS Releases New FBAR Form

The Internal Revenue Service has released a revised Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), which can be found here. The revised FBAR Form is used to disclose financial interests in or signature authority over foreign financial accounts where such accounts exceed $10,000 in the aggregate at any time during the calendar year. The revised FBAR Form implements the Regulations as discussed above and is to be used for the upcoming June 30, 2011 filing deadline and can be found here.

The instructions to the revised FBAR Form provide additional guidance to assist filers in completing the Form. Revised definitions, which include “United States Person,” “signature authority” and “foreign financial account,” track the changes described in the final Regulations. In addition, the instructions offer clarifying guidance on how to complete the Form, including, for example, where the filer is an individual with signature authority over a foreign financial account, is a disregarded entity, or is an entity that does not have a United States mailing address.

The revised instructions clarify that consolidated reporting is available for non-corporate as well as corporate affiliates, and instruct filers on how to determine the maximum account value of each account. The revised instructions also provide a reorganized list of exceptions to the filing requirement, which confirms the categories of exceptions as expanded under the final Regulations; this list indicates that the following persons, among others, are not required to file FBARs:

  • owners and beneficiaries of IRAs and participants in and beneficiaries of tax-qualified retirement plans;
  • officers and employees with signature authority but no financial interest in financial accounts of companies, the shares of which are registered with the SEC (including those listed on a US national securities exchange); and
  • officers and employees of entities which are registered with and examined by the SEC and provide services to registered investment companies (i.e., registered investment advisors) with signature authority but no financial interest in the financial accounts of such companies.



An IC-DISC can provide a permanent 20% tax savings (or even more) for qualifying U.S. manufactures and exporters.


For U.S. exporters operating their business via a sole proprietorship or pass-through entity (e.g., limited liability company (LLC), S corporation, limited partnership (LP)), the IC-DISC benefit is essentially tied to the differential between the qualified dividend rates and the ordinary income tax rates. This differential was originally set to expire on December 31, 2010 but Congress extended it in late December of 2010 to December 31, 2012.

Many practitioners strongly believe that this differential will be extended past 2012 even if tax rates on ordinary income increase. In addition to benefiting sole proprietorships and pass-through entities, exporters operating their business via a C corporation can benefit by using the IC-DISC to eliminate double taxation on a majority of their export income, as well as to reduce the need to incur additional payroll taxes on income paid to their shareholders/officers. The IC-DISC is not a tax shelter.

To qualify as an IC-DISC, a domestic corporation must pass two main tests known as the qualified export receipts test and the qualified export assets test. The qualified export receipts test requires that 95% of the gross receipts of the IC-DISC constitute qualified export receipts. The qualified export assets test requires that 95% of the assets of the IC-DISC be qualified export assets. Qualified export assets include accounts receivable, temporary investments, export property, and loans to producers.

Because most of the qualified export receipts categories focus on export property, it is critical that the exporter substantiate that its exports satisfy the definition of export property. Three requirements must be met in order for the IC-DISC to receive income from an export sale. The export property must:

(1) Be manufactured, produced, grown, or extracted in the U.S. by a person other than the IC-DISC.

(2) Be held primarily for sale, lease, or rental for use, consumption, or disposition outside the United States

(3) Have a maximum of 50% foreign content.

Although exporters often think of newly produced property as export property, used equipment and even scrap also qualify.

In its most recent form, the IC-DISC can provide a permanent 20% tax savings (or even more) for qualifying U.S. exporters. In certain cases, it eliminates U.S. tax entirely on the majority of export income. In addition, distributions to individual shareholders are currently taxed at a maximum rate of 15% – providing a way to convert 35% ordinary income to 15% qualified dividend income. Of course, this assumes that the U.S. exporter generates operating profits and is creating taxable income in the U.S.

IC-DISC Structure

The IC-DISC is a “paper” entity used as a tax-savings vehicle. It does not require corporate substance or form, office space, employees, or tangible assets. It simply serves as a conduit for export tax savings. An important feature of the IC-DISC is that shareholders can be corporations, individuals, or a combination of these.

This is how an IC-DISC works:

  • Owner-managed exporting company forms a special U.S. corporation that elects to be an IC-DISC. The election is made on IRS Form 4876-A, which must be filed within 90 days after the beginning of the tax year.
  • Exporting company pays IC-DISC a commission.
  • Exporting company deducts commission from ordinary income taxed at up to 35%.
  • IC-DISC pays no tax on the commission as long as certain qualification standards are met such as the 95% qualified export assets and the 95% qualified export receipts requirements of Section 992(a)(1).
  • Shareholders of an IC-DISC are not taxed until the earnings are distributed as dividends. However, the shareholders must pay annual interest on the tax deferred.
  • Shareholders that are individuals pay income tax on qualified dividends at the capital gains rate of 15%. C Corporation shareholders are automatically considered to have received 1/17th of the IC-DISC’s taxable income even if no distributions are made.
  • The result may be a 20% or more tax savings on commission.

Permanent Tax Savings on Global Sales

Permanent tax savings begin with the exporting company deducting the commission it pays to the IC-DISC from its ordinary income, which is taxed at up to 35%. Tax law sets the commission rate, which is based on export sales revenue, as the greater of either 50% of net export income or 4% of export sale revenue. Because the IC-DISC is tax exempt, tax is paid only on distributions to shareholders. Individual and pass-through company shareholders pay income tax on qualified dividends at the long-term capital gains rate of 15%.

Ability to Leverage Cost of Capital

An IC-DISC is more than a tax-savings vehicle. It can also be used as a deferral tool to leverage a company’s cost of capital. IC-DISC earnings need not be distributed to shareholders; they can instead be used to perpetuate and grow the deductible dividend tax rate savings. Tax rate savings are perpetuated by lending accumulated IC-DISC earnings back to the exporting company in return for a note and interest. The exporting company can deduct the interest expense, and interest income is considered a dividend to the IC-DISC shareholders. Reinvesting IC-DISC earnings back into the exporting business results in additional tax rate savings and diminishes the group’s cost of capital.

Opportunities to Create Management Incentives

Businesses can also use ownership in the IC-DISC to provide incentives. Exporting company management and other personnel can be named as shareholders, which allows them to benefit from additional cash flow created by increasing global sales.

Means to Facilitate Succession Planning

An IC-DISC offers a number of ways to execute a succession plan. Among these, ownership in the IC-DISC can be used as a means of generating cash, which can be distributed to shareholders in a tax-advantaged manner. IC-DISC shareholders participating in a buyout of current or previous shareholders can leverage these tax-advantaged IC-DISC earnings to pursue the buyout plan.


For U.S. exporters, the IC-DISC is the only remaining tax-saving opportunity. If you are unsure about whether or not an IC-DISC will work, ask the following questions:

  • Do you have any transactions outside of the U.S.?
  • Do you use overseas distribution?
  • Does your product cross any borders?
  • Are you generating operating income?

If the answer to any of these questions is yes, an IC-DISC could be a valuable tax-savings vehicle for your business.

On the surface, the rules covering the IC-DISC may seem simple. However, to maximize the tax benefit, a qualified IC-DISC advisor should be engaged. Many times an IC-DISC expert can double if not triple the tax benefit the IC-DISC provides by applying their in-depth understanding of how to structure the IC-DISC and using the complex advance pricing rules that the Internal Revenue Code allows for determining the tax benefit. A firm that has proven IC-DISC expertise, offers fixed fees, and optimizes the IC-DISC on a transactional basis (which almost always provides the best result) should be chosen.