+ ic-disc – u.s. tax incentives for the export of lumber overview of captive insurance appalachian...
TRANSCRIPT
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IC-DISC – U.S. Tax Incentives for the Export of Lumber
Overview of Captive Insurance Appalachian Hardwood Manufacturers, Inc.
2015 Annual MeetingFebruary 27, 2015
+ Lumber Industry -Tax Incentives to Promote Exports Lumber industry generates $200 billion in sales annually
Revenue Act of 1971 and Revised by the Deficit Reduction Act of 1984 created incentives for U.S. companies to export
IC-DISC – Interest Charged – Domestic International Sales Corporation
In 2008, the IRS reported only 1,600 IC-DISC.
As a means of encouraging exports, qualifying, export products are subject to substantially lower rates.
60% PLUS reduction in federal income taxes.
Possible state tax savings as well.
+IC-DISC - Structure & Requirements
LOTS OF TECHNICAL REQUIREMENTS – DO NOT ATTEMPT THIS AT HOME!
C Corp. – Does Not Pay Federal Taxes (but no flow through to shareholders)
IRS Election to be treated as an IC-DISC Minimum capitalization at all times Must maintain separate bank account and accounting records Files IRS Form 1120 IC-DISC Commission paid in by export supplier and out to the shareholders Shareholders may be company owners or incentive program for key
employees or as an estate planning tool or otherwise
+IC-DISC – Indirect Structure
Tax exempt
Export Assurance serves as TPA
IC-DISC
Shareholders
Your Operating Company/Exporter
U.S.Custome
r
Non-U.S.Custome
r
$$Dividends$$
Commissions
50% benefit!!!
+IC-DISC – Direct Sales Structure
All of the export profits are tax exempt
Caveat: Monies are still locked in a C corp.
Again – U.S. objective is to spur U.S. exports
100% tax benefit!!!
+“Qualified Export Receipts” – What Counts
Defined as receipts from selling or leasing export property to purchaser or lessee outside of the US. Generally, no more than 50% of the value of the export property its attributed to articles imported into the U.S. Example: Mahogany grown in South America but processed in the U.S. -- May or may not qualify.
Timing – Qualified Export Receipts can only begin at date of formation
Beyond IC-DISC 101 – What Qualifies? Direct Export Indirect Export (sold to party that then exports the property) Part of a Whole that is export directly or indirectly Leasing of Equipment Engineering or Architectural Services – performed in the US or abroad Excluded – Unprocessed softwood timber
+IC-DISC – Export Profits
23.8% FIT
With an IC-DISCWithout an IC-DISC
45+% FIT
+ IC-DISC - Tax Savings Simplified
Pre-taxable Income $ 6,000,000
FIT @ min. 39.6% $ 2,376,000
FEDERAL TAX WITHOUT IC-DISC$2,376,000
Total Revenue $30,000,000 Non -IC-DISC Sales $10,000,000 Pre-Tax Income $ 2,000,000 (20% margins)
FIT @ min. 39.6% $ 792,000
IC-DISC Sales $ 20,000,000 Pre-Tax Income $ 4,000,000 (20%
margins)
FIT @ 23.8% $ 952,000
FEDERAL TAX WITHOUT IC-DISC$1,744,000
WITHOUT IC-DISC WITH IC-DISC “DIRECT SALES”
Factors:Operating Company Sales $30,000,000 Domestic Sales $10,000,000 Export Sales $20,000,000
Total Pre-Tax Income $ 6,000,000 (20% pre-tax margins)
TAX SAVINGS $632,000
+Export Assurance, Ltd. True Turnkey Services
We jointly design, structure, implement and operate the IC-DISC arrangement.
Client handles the checkbook, billing and physical flow of product.
We handle the legal and financial structure.
Support by Capstone and Law Firm in case of IRS audit or inquiry.
+Captive Insurance
There are 10,000± captive insurance companies in the world.
A captive insurance company is a company that has been established to insure the risks of a specific organization(s).
Single-Owner Captives. A person establishes a "single owner or pure captive" to insure its own risks and the risks of its subsidiaries and affiliates.
The Single-Owner Captive is the core of Capstone's business.
Capstone Associated Services, Ltd. specializes in single-owner captives with annual premiums of under $1,200,000/calendar year.
+Captive Structure
Operating Business(es)The “Insureds”
Captive Insurance Company
(Always a U.S. Company for Tax)
Common Ownership
Customized Coverages
Ins. Premiums
FOR PROFIT, U.S., TAX EXEMPT ENTITY!!! WHO IS A GOOD CANDIDATE? Private, closely-held, profitable
business(s) Revenues of $5 million or more or
$1.5+ million taxable income
+Why Form a Captive
Customize Your Coverage – the true reason for a captive
Mitigate Your Risk– reduced total cost of risk
Concern over coverage exclusions and retained risks
Increased Cash Flow - financial and tax considerations
Increase income tax & wealth building efficiencies
+Asset Protection Overlay
Operating Business(es)The “Insureds”
Captive Insurance Company
(Always a U.S. Company for Tax)
Common Ownership
Insurance Premiums
$$ Secured Loan $$
+Commercial vs. Captive Coverages
+Sample Coverages Written By 831(b) Captives
Loss of Key Employee Disease affecting production or
quality of lumber Loss of Customer General Liability Professional Liability Property
Excess Coverage Environmental /Pollution Product Liability Cyber Risk Flood Regulatory Changes
+Inherent Benefits of 831(b) Captives
Improved risk protection from customized policies
0 % Federal Income Tax on underwriting profits
Investment income is taxed at regular C- Corp rates
Increase income tax efficiencies
Increase wealth accumulation efficiencies
Ownership benefits
State tax implications
Dodd Frank considerations
Limited to premium income <$1.2 Million per year
+How to Access Captive Surplus
Insurance Loss
Secured Loan
Qualified Dividend
Captive Acquires or Finances Strategic Assets
Long Term Capital Gain (qualifying event)
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+Services & Expertise
Capstone – The Granddaddy in the Captive Industry. 17 years. 175 captives.
Recognized as the most sophisticated organization.
Turnkey services provider, coordinates risk manager, local domicile counsel, actuary, independent auditor, third-party re-insurer, professionals engaged in policy design and pricing, and others.
175 + captives formed over 15 years. Substantial infrastructure. Best practices.
Affiliated law firm with 10+ business (tax, corporate, regulatory, litigation) lawyers strong in experience.
Optimize captive ownership and operations. Not a clerical or administrative provider. We are tax lawyers. We do not disclaim tax & legal issues. Hand tax audits and tax litigation.
+ Questions?
Stewart A. Feldman
Lance McNeel
713.800.0500