Step 1: Confirm Your Business Type and Ownership Structure
To qualify for IC-DISC benefits, your entity must be a U.S. corporation (C-Corp, S-Corp, or LLC electing C-Corp treatment) formed under U.S. law. The IC-DISC itself must also be a separate legal entity, with its own books and records, distinct from your operating company. Each IC-DISC must:- Be a U.S. domestic corporation.
- Maintain only one class of stock.
- Have at least $2,500 in capital stock.
Step 2: Ensure Export Income Eligibility
At least 95% of the IC-DISC’s gross receipts and assets must be related to export activity. Export property includes goods manufactured, produced, grown, or extracted in the U.S. and sold for use outside the U.S. Qualifying products and services typically include:- Industrial machinery, equipment, and parts.
- Agricultural products.
- Software and technology licensed for foreign use.
Step 3: Establish Proper Recordkeeping and Documentation
Accurate documentation is critical for IC-DISC compliance. You must maintain:- Detailed invoices showing export sales.
- Proof of foreign destination.
- Transfer pricing calculations supporting IC-DISC commission amounts.
Step 4: Set Up Commission Arrangements and Pricing Methods
The IC-DISC typically earns income through a commission-based arrangement with the exporting company. The commission can be determined using one of several IRS-approved methods—most commonly:- 4% of export gross receipts, or
- 50% of combined taxable income from export sales.
