DISC
A corporation must elect IC-DISC status by filing
Form 4876-A, Election To Be Treated as an Interest
Charge DISC, with the Internal Revenue Service
Center where it files Form 1120-IC-DISC, Interest
Charge Domestic International Sales Corporation
Return. An officer who is authorized to sign for
the corporation must sign the form.
A
corporation electing IC-DISC status for its first
tax year must file Form 4876-A within 90 days
after the beginning of the tax year. However,
an existing corporation must file the form within
the 90-day period immediately preceding the first
day of the tax year.
For the election to be valid, every shareholder
who is a shareholder on the first day of the corporation's
tax year for which the election is effective must
consent. Shareholders give their consent on the
bottom of the Form 4876-A. Once the consent is
made, it is binding on the shareholders and new
shareholders.
An IC-DISC must file Form 1120-IC-DISC. Any corporate
officer authorized to sign for the corporation
must sign the form. The form must be filed by
the 15th day of the 9th month after the tax year
ends. No extension of time to file is allowed.
It must be filed with the Internal Revenue Service
Center where the common parent files. The IC-DISC
should provide Schedule K to shareholders notifying
them of distributions and deferred accumulated
earnings.
A
shareholder must file Form 8404, Computation of
Interest Charge on DISC-Related Deferred Tax Liability,
when it files its US income tax return for the
tax year ending with or including the end of the
IC-DISC's tax year for which the deferred income
is reported.
An
individual must pay the interest charge by the
15th day of the 4th month following the close
of his or her tax year. A corporation must pay
the interest charge by the 15th day of the 3rd
month following the close of its tax year. To
compute the interest charge, individual and corporate
taxpayers should file Form 8404.
The
TRA of 1984 replaced DISCs with FSC provisions
to counter arguments from major trading partners
that the DISC provisions constituted an illegal
export subsidy under the General Agreement on
Tariffs and Trade ( IC-DISCs exist, however, for
small domestic taxpayers). FSCs were exempt from
US tax on a portion of export income. The exempt
income is generally at least 15% of the combined
taxable income (CTI) earned by the FSC and its
related supplier from qualified exports.
After
the World Trade Organization (WTO) finally ruled
in early 2000 that the FSC constituted an illegal
trading subsidy, the US passed replacement legislation
called The Extra-Territorial Income Exclusion
Act.
This
in turn was ruled illegitimate by the WTO, and
after much to-ing and fro-ing, including the imposition
of permitted tariffs by the EU during 2004 on
many US imports, US President George W Bush finally
signed a law in late 2004 which repealed the FSC-ETI
legislation in favour of broader tax reliefs.
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