Chapter 13
DISTRIBUTIONS BY A DISC
DISC benefits are structured as a tax deferral. More specifically, income categorized as accumulated DISC income is free from current taxation as long as it is retained by the DISC. Consequently, the criteria for categorizing income as accumulated DISC income and the determination of when it is distributed are both important facets of the DISC provisions.
The income-categorization rules and the distribution rules are integrally related through a deemed-distribution procedure! Through- out a DISC's existence, it is treated as having made various types of distributions to its shareholders.2 These rules determine the character of the income distributed, as well as the character of the income retained.8 This characterization then applies to actual distributions of cash or property, if and when they are made.
Three Types of Distributions There are three basic types of DISC distributions: regular distributions,4 deficiency distributions,5 and liquidating distributions.6
1. §995(b).
2. §§995(a),995(b)(I).
3. § 996(a).
4. §995(b)(I).
5. §§ 992(c),996(a) (2).
6. § 995(b) (2).
