With the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, many businesses have renewed their focus on evaluating tax-saving strategies. Several planning techniques such as bonus depreciation or accelerated cost recovery primarily offer timing benefits through tax deferral. But one long-standing opportunity remains unchanged and continues to provide permanent tax savings for U.S. manufacturers and distributors that export: the Interest Charge Domestic International Sales Corporation, commonly referred to as the IC-DISC.
Despite being part of the tax code for decades, the IC-DISC is often overlooked or misunderstood. For companies with qualifying export activity, however, it can represent one of the most effective ways to permanently reduce the overall tax burden associated with international sales.
Why IC-DISC Matters for Exporters
Unlike strategies that simply shift tax liabilities into future periods, an IC-DISC directly reduces a company’s effective tax rate, creating permanent tax savings year after year. This is accomplished by converting a portion of export-related income from ordinary income, taxed at higher marginal rates, to qualified dividends, currently taxed at a maximum federal rate of 23.8%.
In an environment where many tax benefits are temporary, phased out, or subject to legislative uncertainty, the IC-DISC stands out for its durability. The rules governing IC-DISCs were not modified by recent tax legislation, making the structure a reliable and predictable planning opportunity for eligible exporters.
How the IC-DISC Structure Works
To take advantage of the IC-DISC structure, a separate legal entity must be formed and the appropriate election filed. Once this is established, the operating company pays a commission to the IC-DISC based on export sales. The operating company then receives a deduction for the commission at ordinary income tax rates. The IC-DISC distributes its income to its shareholders as qualified dividends, subject to the lower dividend tax rate.
The net effect is a permanent reduction in federal taxes on a portion of export income, without changing how the business operates or how customers are served.
An Example of IC-DISC Tax Savings
Say, for example, a U.S. S corporation calculates an IC-DISC commission of $1,000,000 payable to its wholly owned IC-DISC. The S corporation receives a $1,000,000 ordinary deduction, reducing federal tax by approximately $296,000.
The IC-DISC distributes the commission as a dividend, generating $238,000 of tax at the 23.8% dividend rate.
This translates to a net annual tax savings of $58,000, effectively reducing the company’s tax rate by 5.8%.
While actual results depend on facts and circumstances, this example highlights how even modest export activity can translate into meaningful, recurring savings.
Maximizing the Benefit
There are several allowable methods to calculate the IC-DISC commission, typically tied to export revenue or profitability. Proper analysis is essential to determine the most advantageous method and ensure the highest permissible commission, thereby maximizing tax savings.
Importantly, IC-DISC benefits are not limited to traditional manufacturers. Distributors, contract manufacturers, and companies that perform substantial U.S. production activities may also qualify, even if finished goods are sold through third parties or foreign affiliates.
Ongoing Advantages
Once in place, an IC-DISC requires only modest administrative effort yet delivers ongoing, annual tax benefits. However, it is important to confirm that the company’s products and transactions meet IC-DISC qualification requirements to maintain eligibility.
Beyond annual income tax savings, an IC-DISC can also serve as a strategic tool in broader wealth transfer and compensation planning. Notably, the shareholders of the IC-DISC do not need to be the same individuals or entities that own the operating company. This flexibility allows businesses to align IC-DISC ownership with estate planning goals, family succession strategies, or key executive incentives.
4 Common IC-DISC Misconceptions
Although the IC-DISC has been part of the tax code for decades, it is often misunderstood in practice. Many companies assume they don’t qualify or that the effort outweighs the benefit without fully evaluating the structure. Here are four of the most common misconceptions:
- IC-DISCs only work for large exporters.
Not true. Many middle-market manufacturers and distributors benefit from an IC-DISC, even with relatively modest export volumes. In many cases, annual export sales well below $10 million can still produce meaningful, recurring tax savings. - Our products are sold through distributors, so we don’t qualify.
Companies don’t need to sell directly to foreign customers to qualify. Export sales made through domestic or foreign distributors may still be eligible, provided the underlying products meet U.S. manufacturing requirements. - The IC-DISC is aggressive or frequently challenged by the IRS.
The IC-DISC is a long-established provision of the tax code with clearly defined rules. When properly structured and documented, it is a well-accepted planning strategy rather than an aggressive tax position. - The administrative burden outweighs the benefit.
Once implemented, IC-DISCs generally require limited ongoing maintenance. For most qualifying exporters, the annual tax savings far exceed the administrative costs.
Who Should Consider an IC-DISC?
An IC-DISC is particularly beneficial for companies where:
- Export profits are increasing
- Owners are in higher tax brackets
- There is a desire for permanent tax savings rather than short‑term deferral
- The business exports a meaningful volume of U.S. manufactured products
For qualifying exporters, the IC-DISC remains one of the few opportunities to achieve a structural reduction in tax rates, rather than a temporary benefit. As businesses reassess their tax posture in light of recent legislation, the IC-DISC deserves renewed attention as a proven, enduring planning strategy.
Explore Whether an IC‑DISC Is Right for Your Business
For U.S. manufacturers and distributors looking to strengthen their tax strategy in a shifting legislative landscape, the IC‑DISC remains a powerful and underutilized opportunity for permanent tax savings. Whether your export activity is well established or just emerging, now is the ideal time to evaluate how this structure could enhance your bottom line. To explore whether an IC‑DISC is right for your business, learn more here or connect with our Manufacturing & Distribution Tax Specialists for guidance tailored to your operations.