DISCs are saving American businesses billions of dollars in taxes while encouraging U.S. exports, but many of the more than ten thousand DISCs do not take full advantage of the benefits provided by the tax law. Here is how we were able to more than double DISC benefits for one such company by establishing a FISC subsidiary and grouping DISC sales in an advantageous manner.
Basic Data
The name of the company
and its products have been disguised and the numbers have been
rounded, but the strategy is one we have been using for more than
half a decade. Randynanlee Co. has total sales of $20 million,
of which $2 million are export sales. The company has an international
sales "' office in the United States with four international
salesmen and an inter- national sales manager. The annual expenses
of the international sales office are $300,000 including salaries
and overseas travel. Randynanlee Co. manufactures and sells two
products in foreign markets, each of which has annual sales of
$1,000,000 per year. The company began exporting in 1976 and established
its DISC in 1977. Randynanlee Co. uses the calendar year as its
taxable year and its DISC uses a fiscal year ending January 31.
During its 1978-1979 year, before implementing the FISC and grouping strategies, the DISC earned $80,000 on sales of $2,000,000. Randynanlee cost of goods sold was $1,400,000, its direct sales expense (the international sales office) was $300,000, and other expenses apportionable to export income were $140,000, 1 leaving combined taxable income for Randynanlee Co. and
ROBERT FEINSCHREIBER is an attorney in the law firm of Robert ExportDISC Management Company. He received his B.A. from Trinity College, LL.B. from Yale Law School, M.B.A. from Columbia Graduate School of Business, and LL.M. in Taxation from New York University. I. Reg. Sec. 1.861-8(t)(iii); Reg. Sec. 1.994-1(c)(6)(iii); see Feinschreiber, Allocation and
Apportionment of Deductions (Greenvale, NY: Panel Publishers,
1978).
