Paul Ferreira, CPA & President of ETM
1250 Broadway, 36th Floor
NY, NY 10001
WITH MORE NEW YORK COMPANIES ANSWERING GOV. CUOMO’S CALL TO EXPAND GLOBALLY, INCREASED NEED FOR EDUCATION ON IC-DISC FEDERAL TAX BENEFITS
Five years ago, the Obama administration announced a plan to increase exports to $3.14 trillion by the beginning of 2015. So how are we doing? Well, not quite near that ambitious target, but thankfully there have been efforts by our local government to get New York companies to increase their exports.
In October, Governor Cuomo announced the formation of the Global NY Development Fund. The main purpose of the Fund, he said, is to “help small- and medium-sized New York companies tap into global markets to grow their exports and create new jobs” in the state. According to the Office of the United States Trade Representative, 95 percent of the world's consumers reside outside the United States. Central New York Regional Economic Development Council Co-Chair Robert Simpson said, “More than 80 percent of global growth over the next five years is projected to come from outside the United States.”
The press release announcing formation of the Global NY Fund stated that in 2012,
New York State’s combined service and merchandise exports to foreign markets equaled $100.1 billion, making New York among the top three exporting states. More and more companies in New York and across the country that are looking for growth and a way to avoid the uncertainties presented by the U.S. economy are doing business with foreign markets. In a survey of 449 CEOs conducted by Inc. and Amar Bhidé, a professor at Columbia University's Graduate School of Business, 58 percent of those doing business overseas reported that foreign demand for their product was growing.
When a company goes global, there are unique challenges. But there can also be great financial opportunities. One of the lesser known opportunities for privately-held U.S. exporters is a powerful federal tax savings program called the Interest Charge-Domestic International Sales Corporation or IC-DISC. And though New York is friendly to the IC-DISC, it is greatly underused by businesses, with thousands of companies that are eligible for tax savings failing to take advantage of this federal program.
The IC-DISC was initially introduced by the Nixon administration in 1971 to encourage companies to remain in the U.S. and to discourage them from relocating overseas where labor is cheaper. In early 2013, President Obama signed the American Taxpayer Relief Act of 2012. This landmark legislation provided permanence for the IC-DISC, allowing companies that have products delivered outside of the U.S. to significantly reduce their federal income taxes related to their export sales.
The IC-DISC is a separate corporation from the exporting company; however, the IC-DISC does not pay any federal income tax. It is a domestic corporation that elects to be an IC-DISC, and therefore is not taxed on its income.
So how do you know if your company is eligible for an IC-DISC? Your best bet is to speak with a CPA with in-depth international tax experience. But basically, you must be a U.S. company that exports products or services, such as a seafood, wood, scrap metal, technology or agriculture. You may also be eligible if you sell a product to a distributor who then sells the product outside the U.S. within one year. You must be a privately-owned S Corp, C Corp, partnership, sole proprietor or LLC to utilize an IC-DISC.
Another beautiful feature of the IC-DISC is that it is completely non-invasive to the company’s daily operations. Plus, with the usually substantial tax savings, companies have more funds available to reinvest.
The cost of implementing an IC-DISC is minimal, especially when you look at the potential federal tax savings. But it must be structured and maintained properly, ideally by a CPA who specializes in the IC-DISC. Many firms offer IC-DISC services, but most don’t specialize in it. An improperly implemented or maintained IC-DISC will not only result in decreased benefits, but might result in disqualification by the IRS. With a solid IC-DISC in place, exporters can significantly decrease federal taxes and be in full compliance with the IRS.
To find out if your company is eligible for an IC-DISC, contact us at or get more details at exporttaxmgmt.com.
Here’s to a prosperous 2015!
Paul Ferreira, CPA is President of Export Tax Management, with offices in New York, Philadelphia and Boston. Export Tax Management is the premier international tax advisory firm specializing in the IC-DISC. ETM’s staff of CPA’s supports clients from a variety of industries including seafood, manufacturing, scrap metal, technology and recycling. Export Tax Management has helped companies in these industries realize hundreds of millions of dollars in tax savings.