IC-DISC vs. FDII Tax Incentives: Eligibility and Filing Requirements, Utilizing Both to Maximize Tax Savings

The IC-DISC deferral and FDII deduction provide tax savings for entities qualifying for these tax reducing regimes. An IC-DISC election converts income taxed as ordinary income, at corporate rates as high as 37 percent, into qualified dividends taxed at a much lower rate, typically 23.8 percent. An FDII deduction provides a 37.5 percent deduction for certain U.S. C corporation taxpayers, effectively reducing the federal income tax rate from 21 percent to 13.135 percent for FDII. After 2025 the deduction rate decreases from 37.5 percent to 21.875 percent for an effective rate of 16.4 percent.

Congress established the IC-DISC tax incentive to encourage exporting U.S. goods and services. Qualified entities must elect this tax benefit by filing Form 4876-A, Election to be Treated as an Interest Charge DISC. Once filed, the election remains in effect until it is terminated or revoked. To claim the FDII deduction, the company must complete Form 8993, Section 250 Deduction for FDII, and file the form along with its tax return.

Given the right fact pattern, a taxpayer may be able to use both incentives. The key for tax professionals and businesses is to identify fact patterns where both IC-DISC and FDII may apply.

Listen as our seasoned international tax consultant explains how to reap the benefits of both the IC-DISC and FDII tax benefits for qualifying taxpayers.

1. IC-DISC vs. FDII: introduction
2. Applicable industries
3. IC DISC
   • Defined
   • Qualifying entities
   • Interest charge
   • Election
4. FDII
   • Defined
   • Applicable businesses
   • Calculation
   • Form 8993
5. Comparing IC-DISC and FDII requirements
6. Examples

The panel will cover these and other key issues:

• Applicable industries that are candidates for FDII and IC-DISC tax benefits
• Combining IC-DISC and FDII tax incentives to maximize tax savings
• Eligibility for IC-DISC and FDII tax incentives
• Filing requirements for FDII and IC-DISC incentives

Learning Objectives

After completing this course, you will be able to:

• Identify scenarios where a company could qualify for FDII and IC-DISC tax benefits
• Determine eligibility requirements for the FDII deduction
• Ascertain which industries benefit from FDII and IC-DISC tax incentives
• Decide how to elect IC-DISC status

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IRS Approved Provider

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