Eligibility
Requires a domestic corporation with one class of stock, minimum $2,500 capital, and shareholder consent. Election must be made during the 90-day period preceding the tax year.
Frequently Asked Questions
Who is eligible for the DISC Status Election?
Requires a domestic corporation with one class of stock, minimum $2,500 capital, and shareholder consent. Election must be made during the 90-day period preceding the tax year.
How does the DISC Status Election work?
Election to be treated as a DISC to defer tax on export income or convert high-taxed ordinary income into lower-taxed dividend income for shareholders.
What law authorizes the DISC Status Election?
The DISC Status Election is authorized under IRC §992(b) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §992
Source: Internal Revenue Code, Title 26, United States Code
§ 992. Requirements of a domestic international sales corporation(a) Definition of “DISC” and “former DISC”(1) DISCFor purposes of this title, the term “DISC” means, with respect to any taxable year, a corporation which is incorporated under the laws of any State and satisfies the following conditions for the taxable year:(A) 95 percent or more of the gross receipts (as defined in section 993(f)) of such corporation consist of qualified export receipts (as defined in section 993(a)),
(B) the adjusted basis of the qualified export assets (as defined in section 993(b)) of the corporation at the close of the taxable year equals or exceeds 95 percent of the sum of the adjusted basis of all assets of the corporation at the close of the taxable year,
(C) such corporation does not have more than one class of stock and the par or stated value of its outstanding stock is at least $2,500 on each day of the taxable year, and
(D) the corporation has made an election pursuant to subsection (b) to be treated as a DISC and such election is in effect for the taxable year.
(2) Status as DISC after having filed a return as a DISCThe Secretary shall prescribe regulations setting forth the conditions under and the extent to which a corporation which has filed a return as a DISC for a taxable year shall be treated as a DISC for such taxable year for all purposes of this title, notwithstanding the fact that the corporation has failed to satisfy the conditions of paragraph (1).
(3) “Former DISC”For purposes of this title, the term “former DISC” means, with respect to any taxable year, a corporation which is not a DISC for such year but was a DISC in a preceding taxable year and at the beginning of the taxable year has undistributed previously taxed income or accumulated DISC income.
(b) Election(1) Election(A) An election by a corporation to be treated as a DISC shall be made by such corporation for a taxable year at any time during the 90–day period immediately preceding the beginning of the taxable year, except that the Secretary may give his consent to the making of an election at such other times as he may designate.
(B) Such election shall be made in such manner as the Secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on the first day of the first taxable year for which such election is effective consent to such election.
(2) Effect of electionIf a corporation makes an election under paragraph (1), then the provisions of this part shall apply to such corporation for the taxable year of the corporation for which made and for all succeeding taxable years and shall apply to each person who at any time is a shareholder of such corporation for all periods on or after the first day of the first taxable year of the corporation for which the election is effective.
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