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S-Corporation with no IC-DISC Domestic Export Total 6,000,000 600,000 120,000 720,000 600,000 120,000 80,000 600,000 120,000 720,000 600,000 40,000 2,000,000 8,000,000 6,000,000 2,000,000

S-Corp with IC-DISC Domestic Export Total 8,000,000 720,000 80,000 640,000

Dividend

Sales

Taxable Income before Commission (1)

Commission expense 50/50 method

80,000

Net federal taxable Income after Commission

Shareholder Level 210,000 42,000 252,000 210,000 14,000 224,000 12,000 210,000 (I) 42,000 252,000 468,000 210,000 14,000 224,000 484,000 (II) 16,000 12,000

Federal Tax at 35%

Federal Tax on IC-DISC Dividend 15%

Tax to shareholder

After Tax Cash available to shareholder

Minimum Federal Tax Savings (II) less (I)

Footnote: (1) greater of (A) or (B) 80,000 60,000

(A) 4% of Qualified export receipts ($2,000,000 * 4%)

(B) 50% of export taxable income from export sales ($120,000 * 50%)

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2009 Prior Year $ $ $ 120,000 $ (60,000) 210,000 150,000 Current Year

2010

DISC Taxable income and earnings and profits for the year

Actual distributions during current tax year

Accumulated DISC income - end of year

Calculation of interest charge: $ $ $ 150,000 (60,000) $ $ $ 120,000 42,000 0. 0034 $ 143 120,000

Accumulated DISC income prior year Calculation of Excess Current year distributions Current year income Current year distributions Excess Current year distributions (negative)

Current year deferred DISC taxable income

Assumed deferred tax liability @ 35% Interest charge using current year Base Period T-Bill Rate 2010

"INTEREST CHARGE" paid by shareholder on individual return (deductible interest)

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State Alabama Alaska Arizona Arkansas taxable included in waters edge return combined return taxable as ordinary corporation nontaxable - follows federal nontaxable - follows federal taxable as ordinary corporation nontaxable - follows federal nontaxable - follows federal nontaxable - follows federal taxable as ordinary corporation nontaxable - follows federal nontaxable - follows federal nontaxable - follows federal nontaxable - follows federal taxable as ordinary corporation taxable as ordinary corporation taxable as ordinary corporation nontaxable - follows federal New Jersey New Mexico New York North Carolina North Dakota North Dakota Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming taxable as ordinary corporation (special rules) taxable as ordinary corporation taxable as ordinary corporation taxable as ordinary corporation nontaxable - follows federal taxable as ordinary corporation nontaxable - follows federal nontaxable - follows federal taxable as ordinary corporation nontaxable - follows federal nontaxable - follows federal nontaxable - follows federal taxable as ordinary corporation taxable as ordinary corporation taxable as ordinary corporation nontaxable - follows federal nontaxable - follows federal taxable as ordinary corporation taxable as ordinary corporation taxable as ordinary corporation nontaxable - follows federal taxable as ordinary corporation taxable as ordinary corporation nontaxable - follows federal taxable as ordinary corporation No tax

State Tax Treatment of entity that elects to be an IC-DISC nontaxable - follows federal nontaxable - follows federal taxable as ordinary corporation nontaxable - follows federal State Montana Nebraska Nevada New Hampshire

State Tax Treatment of entity that elects to be an IC-DISC nontaxable - follows federal nontaxable - follows federal No tax taxable as ordinary corporation

California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Ilinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland

Massachusetts Michigan Minnesota Mississippi Missouri

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