Homework - Export Incentives - IC-DISCs
For all of the following questions, USACo is a domestic manufacturing corporation that exports a portion of its products; USACo is an S-Corporation wholly owned by John Client (John pays the tax on the income of USACo). John Client has created an IC-DISC, of which he is also the sole owner. Assume the regular income tax rate is 40%; the dividends tax rate is 20%; the current market rate for 52-week T-bills is 1%.
1. What annual income tax return must be filed by the IC-DISC each year to report its income?
2. What is the minimum par value of stock for an IC-DISC?
3. Who is subject to tax on the income of an IC-DISC? Is the IC-DISC itself subject to income tax? Is John Client subject to income tax? Explain.
4. Discuss the three main requirements for qualifying export property.
5. USACo has $2,500,000 of qualified export sales in 2015. Total direct and indirect costs related to exports are $2,200,000. Answer all 3 parts below; show your work.
a. Compute the 2015 IC-DISC commission using the 4% of qualified export receipts method.
b. Compute the 2015 IC-DISC commission using the 50 percent of combined taxable income method.
c. Compute the maximum overall tax savings for 2014 from the use of an IC-DISC.
6. USACo has two product lines - Widgets and Fidgets. USACo wants to maximize the IC-DISC commission in 2015 by grouping export sales by product line. 2015 data for exports by product line is as follows:
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Widgets
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Fidgets
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$1,000,000 Gross receipts
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$2,000,000 Gross receipts
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($950,000) Direct & indirect costs
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($1,700,000) Direct & indirect costs
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$50,000 Combined taxable income
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$300,000 Combined taxable income
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Answer both parts below; show your work; 10 points.
a. Compute the 2015 IC-DISC commission using grouping.
b. Compute the overall tax savings for 2015 from the use of an IC-DISC.
7. At the end of 2015, $25,000 of IC-DISC income was neither actually distributed nor deemed distributed.
Answer the following questions; 6 points.
a. What Form must John Client file regarding the interest due on deferred IC-DISC income?
b. Compute the amount of interest that John Client will owe in regards to the deferred IC-DISC income.
c. Are estimated tax payments required during the course of the year for the interest owed in regards to this?