MCM Vehicles IC-DISC, Inc.

Export Tax Incentive Guidelines

2012 Purpose & Administration Procedures

Interest Charged Domestic International Sales Company (IC-DISC)

For U.S. exporters operating their business via a sole proprietorship or pass-through entity (e.g., limited liability company (LLC), S corporation, limited partnership (LP)), the IC-DISC benefit is essentially tied to the differential between the qualified dividend rates (15%) and the ordinary income tax rates (35%). Simply speaking, the IC-DISC is set up as a separate company, which elects to be taxed as an IC-DISC. An ICDISC is exempt from income taxes. MCM Vehicles is allowed to pay the IC-DISC a 4% commission on all export sales. This commission is fully tax deductible to the income of MCM Vehicles. Once the money is in the bank account of the IC-DISC, there are a number of options which we will expound upon later in this guide. The IC-DISC is the only remaining export incentive available to American companies, but not understood by the majority of companies that could potentially benefit from the tax break.

Qualifications
Must be a U.S. C-Corporation Must be formed within the first 90 days of the parent companies taxable year Only 1 class of stock with at least $2,500 par value each day of the year Must file form 4876-A with the IRS to be taxed as an ICDISC (in first 90 days of incorporation) 95% of gross receipts must be related to export sales Must maintain entirely separate books and records

Qualifications (continued)
Must comply with the 3 part test:
MPGE Requirements
20% or more of the product value must be added in the U.S.

Content Requirements
No more than 50% of the contents used in manufacturing can be made outside of the U.S.

Destination Test
Property must be sold or leased to a country outside the U.S. It is OK to sell to a freight forwarder or distributor as long as the goods can be proved to have been exported within 1 year of the sell.

Legal Structure
Rod McSweeney Matt McSweeney Michael McSweeney

McSweeney Holdings (LLC)

2 IC-DISC either (1) distributes to shareholders at 15% tax or (2) lends money back to MCM Vehicles for tax deductible interest.

1 MCM Pays 4% commission to IC-DISC on monthly exports

MCM Vehicles (LLC) MCM Vehicles, IC-DISC (C-Corp)

Formation
Organize MCM Vehicles IC-DISC as a C-Corp Make a $3,000 capital contribution to the bank account to meet the par value requirements Draft Commission Agreement between MCM Vehicles and IC-DISC File IRS Form 4876-A to elect to be taxed as an ICDISC Comply with monthly administrative proceedures

Monthly Administrative Proceedures

Calculate commissions (detailed by order)
4% of export revenues 10% of export marketing and promotional costs
Export sales commissions, foreign travel expenses, etc.

Obtain verifiable proof of export for all orders

Bill of Lading required for proof

Book commission expense on MCM Vehicles books as IC-DISC Commissions Transfer funds to IC-DISC and receive funds on separate books as commission revenue. For any out of ordinary orders exported, ensure the documentation of the materials qualification by keeping records of materials and purchase location Log any distributions to shareholders on a monthly basis

Annual Administrative Proceedures

File IRS Form 1120-IC-DISC by Sept 15
Schedule J reports deemed and actual distributions Schedule K reports distributions for each shareholder Schedule P reports DISC pricing or commission
Separate schedule prepared for each transaction or group of transactions

Hold annual board meeting with minutes for IC-DISC company Pay interest (at T-Bill rate) on funds not distributed from IC-DISC

Example Using 2010 Values

Export Sales Revenue Export Marketing & Promotional Fees Export Revenue Commission Export Marketing & Promotion Commission TOTAL COMMISSION AMOUNT 8,020,245 458,000 320,809.80 45,800.0 366,609.80 W/ IC-DISC 2010 Taxable Income LESS: IC-DISC Commission Taxable Income Total FYE 2010 Tax Due 419,000 (366,609.80) 52,390.20 22,475 NO IC-DISC 419,000 0 419,000 179,751

Tax Savings if Loaned Back to Company Tax Savings if Distributed to Shareholders

157,276 124,760