IC-DISC vs. FDII Tax Incentives: Determining When a Taxpayer Can Use Both Methods to Maximize Tax Benefits

The Internal Revenue Code provides two types of export tax incentives, the IC-DISC and the FDII deduction. Tax professionals should understand the tax benefits and features of each to determine which would provide taxpayers with optimum benefits under certain circumstances and recognize instances where both can be used.

The IC-DISC can be a significant U.S. income tax break for some export business owners. In addition to meeting IRS tests for determining qualified export receipts, qualified export assets, and commissions, corporations also must understand and apply all available pricing methods and grouping options to achieve the maximum allowable tax benefits. In addition, tax professionals must recognize available structures for C corporations, the advantages of IC-DISC, using trusts and blocker corporations as intermediaries, commission determination and grouping strategies, and specific drafting techniques.

The FDII allows corporations to deduct a portion of their global intangible income inclusion and their share of foreign-derived intangible income. A deduction is allowed in an amount equal to 37.5 percent of the FDII income of the domestic corporation for the tax year. For tax years beginning after Dec. 31, 2025, the deduction decreases to 21.875 percent.

Listen as Neel Modha, Partner at Holthouse Carlin & Van Trigt, provides an advanced and practical guide to the features and benefits of IC-DISC and FDII, structuring challenges, and going beyond the basics to offer concrete tools to tackle more advanced issues and the challenges in determining which export tax incentive provides the best results for taxpayers. The panel will also provide case studies and examples of circumstances where a taxpayer may be able to benefit from both the IC-DISC and FDII.

1. IC-DISC regime
2. FDII deduction
3. Determining which is best: IC-DISC or the FDII deduction?
   1. Taxpayers who favor IC-DISC benefits over FDII benefits
   2. Taxpayers who favor FDII benefits over IC-DISC benefits
4. Complex structures
   1. "Brother-sister" vs. parent-subsidiary
   2. Trusts and/or blocker corporations as intermediary structures
   3. Deferral opportunities
5. Case studies

The panelist will discuss these and other key issues:

• Features and tax benefits of IC-DISC and FDII structures
• Circumstances where taxpayers would favor IC-DISC benefits over FDII benefits and vice versa
• Determining when a taxpayer may be able to take advantage of both IC-DISC and FDII benefits
• Complex structures, opportunities, and pitfalls to avoid

Learning Objectives

After completing this course, you will be able to:

• Distinguish features and tax benefits of IC-DISC vs. FDII structures
• Decide on strategies for structuring "brother-sister" C corporations in situations where parent-subsidiary structures are not appropriate
• Discern when a trust structure would benefit owners of a C corporation in designing an IC-DISC
• Recognize additional business opportunities under the qualified export receipts definition
• Understand when taxpayers would favor IC-DISC benefits over FDII benefits and vice versa

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).