When explaining the IC-DISC benefit with potential clients we tend to receive the same questions every year. During these early discussions, one of the most common questions is whether or not customers will know of its existence. Since this question regularly comes up, we want to address some of the common misconceptions and elaborate on the transparency of an IC-DISC.
The first common misconception relating to the IC-DISC transparency is which entity actually does the exporting. It is important to note that nothing changes for the exporting entity on a day-to-day basis. The best way to describe the existence of an IC-DISC is to think of it as if it were an internal sales agent that works entirely on commissions. When a sales agent sells a product, the exporting entity remains responsible to fulfill, invoice, and ship the order to its customers. Consequently, the exporter continues to operate its business in the same manner as if the IC-DISC were nonexistent.
Another common concern is the fear that if customers find out about the IC-DISC, they will want some of the tax savings to be passed on through reduced prices. This is where we emphasize that the only individuals that will ever know about the existence of the IC-DISC is the IRS, their CPA firm, and the LBMC/McGuire Sponsel team. As mentioned above, nothing changes from the company’s operating standpoint and at no point would the supplier/commission agreement between the exporting company and the IC-DISC need to be disclosed to customers.
When it comes down to it, in all of its glory, the IC-DISC essentially exists for the sole purpose of running a commission calculation at the end of the year, which is returned as a qualified dividend to the shareholder. Above all, it is important to stress that it is completely invisible to any and all customers and the exporter reaps all the tax benefits.
Guest blog from the professionals of McGuire Sponsel, an LBMC strategic partner delivering specialized tax and advisory solutions. They approach their work as trusted resources to CPAs, enhancing those important annuity relationships through innovative tax strategies.