Interest-Charge Domestic International Sales Corporation (IC-DISC) Deferral

§ 995. Taxation of DISC income to shareholders(a) General ruleA shareholder of a DISC or former DISC shall be subject to taxation on the earnings and profits of a DISC as provided in this chapter, but subject to the modifications of this subpart. (b) Deemed distributions(1) Distributions in qualified yearsA shareholder of a DISC shall be treated as having received a distribution taxable as a dividend with respect to his stock in an amount which is equal to his pro rata share of the sum (or, if smaller, the earnings and profits for the taxable year) of—(A) the gross interest derived during the taxable year from producer’s loans, (B) the gain recognized by the DISC during the taxable year on the sale or exchange of property, other than property which in the hands of the DISC is a qualified export asset, previously transferred to it in a transaction in which gain was not recognized in whole or in part, but only to the extent that the transferor’s gain on the previous transfer was not recognized, (C) the gain (other than the gain described in subparagraph (B)) recognized by the DISC during the taxable year on the sale or exchange of property (other than property which in the hands of the DISC is stock in trade or other property described in section 1221(a)(1)) previously transferred to it in a transaction in which gain was not recognized in whole or in part, but only to the extent that the transferor’s gain on the previous transfer was not recognized and would have been treated as ordinary income if the property had been sold or exchanged rather than transferred to the DISC, (D) 50 percent of the taxable income of the DISC for the taxable year attributable to military property, (E) the taxable income of the DISC attributable to qualified export receipts of the DISC for the taxable year which exceed $10,000,000, (F) the sum of—(i) in the case of a shareholder which is a C corporation, one-seventeenth of the excess of the taxable income of the DISC for the taxable year, before reduction for any distributions during the year, over the sum of the amounts deemed distributed for the taxable year under subparagraphs (A), (B), (C), (D), and (E), (ii) an amount equal to 16⁄17 of the excess referred to in clause (i), multiplied by the international boycott factor determined under section 999, and (iii) any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) paid by or on behalf of the DISC directly or indirectly to an official, employee, or agent in fact of a government, and (G) the amount of foreign investment attributable to producer’s loans (as defined in subsection (d)) of a DISC for the taxable year. Distributions described in this paragraph shall be deemed to be received on the last day of the taxable year of the DISC in which the income was derived. In the case of a distribution described in subparagraph (G), earnings and profits for the taxable year shall include accumulated earnings and profits.