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Domestic
International Sales Corporation
The
Domestic International Sales Corporation is now of
only historical interest. The form existed until 2002
to encourage export activity by allowing tax deferral
within the DISC while it was more or less exclusively
engaged in export sales activity; but when the Foreign
Sales Corporation regime was replaced following adverse
rulings from the WTO, the DISC ceased to be of interest.
In order
to qualify as a Domestic International Sales Corporation
(DISC), a corporation needed to have only one class
of stock with par value of at least $2,500. An IC-DISC
election must have been made and not terminated, and
the parent corporation must not have an affiliated
FSC (Foreign Sales Corporation).
95% of
the corporation's gross receipts had to be from the
sale of qualified export property, or from the the
sale, lease, or servicing of export property. Qualified
export property had to be produced in the United States
and consumed outside the United States; less than
50 percent of the fair market value could be imported.
95% of the corporation's assets had to be 'export
assets'.
There
were complex rules governing the allocation of expenses,
treatment of loss sales, treatment of interest expense,
etc.
The profits
of a DISC were not subject to corporate taxation (it
was deferred), although income from a DISC was subject
to corporate taxation in the hands of shareholders
in certain circumstances:
- Deemed
distribution
- Distribution
upon disqualification
- Income
attributable to military property
- Disposition
of DISC stock
- There
was a foreign investment attributable to IC-DISC
earnings
- Any
income attributable to qualified export receipts
exceeding $10 million.
Form
8404 (Computation of Interest Charge on DISC-Related
Deferred Tax Liability) had to be filed to report
the interest charge on an IC-DISC. The priority of
distributions was:
- Out
of previously taxed income (PTI)
- Out
of accumulated DISC income
- Out
of other E&P
This
is a highly simplified account of the DISC, whose
operation was closely controlled by detailed legislation.
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