Archive for Deferred Disc Income

Deferred DISC Income – How Does It Work?

This is one of the most misunderstood provisions in the IC-DISC area. An IC-DISC shareholder is required to pay an interest charge to the IRS on the tax liability related to the deferred DISC income, so this concept is important and, as stated above, greatly misunderstood. The three most misunderstood concepts are i) what is “deferred DISC income at the end of the computation year”, ii) how are the IC-DISC earnings and profits distributed, and iii) in what order are DISC earnings distributed?

This is one of the most misunderstood provisions in the IC-DISC area. An IC-DISC shareholder is required to pay an interest charge to the IRS on the tax liability related to the deferred DISC income, so this concept is important and, as stated above, greatly misunderstood.

The three most misunderstood concepts are i) what is “deferred DISC income at the end of the computation year”, ii) how are the IC-DISC earnings and profits distributed, and iii) in what order are DISC earnings distributed?

First let’s examine the definition of deferred DISC income at the end of the computation year. This is defined in the regulations as the accumulated DISC income at the end of the prior year. It is not the accumulated DISC income at the end of the current year. The deferred DISC income is always computed on a one-year lag basis.

For instance, a brand-new IC-DISC can’t have deferred DISC income at the end of its first year.
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