Export

If your business sells goods and/or services outside the U.S., you may be able to reduce your federal tax liability in more than half through the use of an interest charge-domestic international sales corporation (IC-DISC). This may be the case even if export sales represent a fraction of your company’s overall sales.

Sound too good to be true?

The IC-DISC is not an exotic strategy designed to “game” the system; it expressly sanctioned by Congress as means of promoting export sales of U.S. goods and services. IC-DISCs were actually introduced back in 1971 and were originally intended to be a tax deferral mechanism. They were used — as my old tax professor used to say, “a tax deferred is money in your pocket” — but never quite caught on. That all change in 2004 when amendments to the Internal Revenue Code caused dividends from qualified corporations, including IC-DISCs, to be taxed at capital gains rates of 15%. Informed exporters stampeded to take advantage of IC-DISCs, which allowed taxation of export profits to be permanently reduced from an effective rate of approximately 35% to the reduced capital gains rate for qualifying dividends.

While government statistics show that IC-DISCs remain underutilized, informed exporters continue to take advantage of the arbitrage tax savings of 20% offered by the structure; if your company is eligible, you should as well.

Candidates for an IC-DISC

• Manufacturers or distributers of products manufactured, produced, grown or extracted in the U.S. that sell or lease such products outside the […]
  

On April 14, 2011, in Washington, D.C., David Mills, the new Assistant Secretary for Export Enforcement, Bureau of Industry and Security (BIS), U.S. Department of Commerce, and his Special Advisor, Bob Rarog, explained the enforcement priorities of BIS. These priorities were established by Eric Hirschhorn, who was just sworn in as Under Secretary of the U.S. Commerce Department’s Bureau of Industry and Security (BIS) on April 2, 2010, after being appointed by President Obama. This event was part of the American Bar Association’s Section of International Law’s Export Controls and Economic Sanctions Committee.

David Mills, who has an excellent perspective from recently being a private practicing attorney, and was formerly the Chief of Licensing at the Office of Foreign Assets Control (OFAC), identified the three primary initiatives of export enforcement by the BIS.

1.  Efficiency – process administrative cases faster.

2.  Education – outreach program to exporting companies.

3.  Enforcement – going for the $250,000 maximum penalty or twice the value of the transaction, whichever is greater.

David Mills stated that where both OFAC and BIS have jurisdiction over a violation, it is best to file voluntary self disclosure simultaneously with both agencies.  Generally, Special Agents from the BIS’ Office of Export Enforcement will conduct the investigation thereafter.  Another interesting point was that the Obama Administration remains focused on Iran, preventing the proliferation of weapons of mass destruction (WMD), and prohibiting any transactions with Specially Designated Nationals (SDNs). This is consistent with the U.S. Department of Justice’s recent National Counter-Proliferation Initiative to increase the […]