Chapter 6
PRODUCERS' LOANS
Producers' loans are loans made by DISCs to domestic manufacturers that meet a number of technical requirements 1 The loan is a qualified export asset that can satisfy in part or in full the requirement that at least 95 percent of the DISC's assets be qualified export assets.2 In addition, interest on a producer's loan is a qualified export receipt that can satisfy in full or in part the requirement that at least 95 percent of the DISC's receipts be qualified export receipts.3 A loan qualifies as a producer's loan only if numerous technical requirements are met by the borrower, the lender, and the loan itself. This chapter examines the requirements and feasibility of producers' loans.
Preliminary Aspects
Producers' loans are typically made to an affiliate of the DISC,
such as a related supplier or the DISC's parent, but such a loan
can be made to an unrelated borrower 4 If the borrower is related
to the DISC, a special provision prevents the loan from being
treated as a dividend unless the fugitive-capital rules are applicable.5
1. Feinschreiber & Carey,
How to Handle Producer's Loans, U.S. TAX. OF INT'L OPERATIONS
~ 9517 (1976); see also Norman, The Use of Producer's
Loans to Increase DISC Benefits, 1 INT'L TAX J. 201 ( 1975)
.
2. § 993(b) (5); Prop. Reg. §§ 1.993-2(a) (5),
1.993-2(£), 1.993-4(a) (2) (i).
3. § 993 (a) ( 1) (F ) ; Prop. Reg. §§ 1.993-1
(g) , 1.993-
4 (a) ( 2) (i) . 4. Prop. Reg § 1.993-4(b) (3) (iii).
5. §§ 995(b)(1)(H), 995(d); Prop. Reg. § 1.993-4(a)(2)(i).
The fugitive-capture rule is discussed at pp. 145-46 infra.
