Certain Services are Eligible for "DISC" Treatment

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When most people consider the significant tax advantages of using a domestic international sales corporation (DISC), they think first about the inventory and other physical assets they intend to sell outside the United States.  Generally forgotten is the fact that certain  service revenues are eligible to receive DISC treatment as part of the DISC export revenue.  These eligible services include: (a) related and subsidiary services; and (b) architectural and engineering services on construction projects.

Services qualify as “related and subsidiary” if the services are furnished by the DISC or a related supplier, and if the services are related or subsidiary in some way to the sale or lease of export property, and are the type of services that are customarily and usually furnished in connection with sale of the export property.  Typical examples of related and subsidiary services would be warranty, maintenance, repair or installation services.

In addition to the “related and subsidiary services” discussed above, engineering and architectural services on construction projects (whether or not the projects are built) outside the United States.   In order for the project to be considered “construction” for purposes of receiving DISC treatment, the project must include the erection, expansion or repair of a new or existing building or other structure including roads, dams, bridges, tunnels, canals, railroads, railroad tracks and pipelines.

Engineering services eligible for DISC treatment  include feasibility studies and other professional services requiring engineering education, training and experience, and the application of specialized knowledge of mathematical, physical or engineering sciences.  Examples of engineering services include consultation, investigation, evaluation, planning, design, or supervision of the construction project.

Architectural services eligible for DISC treatment include professional services such as consultation, planning, aesthetic and structural design, drawings and specifications, or oversight of compliance with plans, specifications and design.

If you export products and services and are not yet taking advantage of the tax savings afforded by use of a domestic international sales corporation, give me a call or email to discuss at Jsenney@pselaw.com or 937-223-1130.

AND ONE MORE THING.   If you and your spouse are forming an LLC, you have the choice of treating your LLC as a partnership, a corporation or a sole proprietorship for federal income tax purposes.  If you and your spouse each own LLC membership units, the LLC must be taxed as a partnership unless you elect to treat it as a corporation.  If only one of you own LLC membership units, you must treat the LLC as a sole proprietorship unless you elect to treat it as a corporation.  If the LLC is treated as a partnership, you must file a partnership tax return on IRS Form 1065 and include a Schedule K-1 for yourself and your spouse to report the partnership income allocated to each of your membership interests.  If the LLC is treated as a sole proprietorship, you do not need to file a partnership tax return and only need to attach a Schedule C to your IRS Form 1040 to report the income generated by the LLC.  Many spouses opt to have the LLC owned by one spouse and treated as a sole proprietorship to avoid the necessity of filing the partnership return.  Call or email me at 937-223-1130 or Jsenney@pselaw.com if you have any questions about the best way to set up your LLC for tax purposes.