The first deadline is the due date of commission payments made by related suppliers to their IC-DISCs. While the form instructions make no mention to this deadline, timely payment is crucial for IC-DISCs that want to keep their tax-exempt status. Under Treas. Reg. 1.994-1(e)(3), the related supplier of an IC-DISC has 60 days after the close of the tax year, March 1st for calendar year taxpayers, to pay a reasonable estimate of its commission. According to the same regulation, a reasonable estimate of the commission payment is equal to at least 50 percent of the taxable income for any particular transaction. However, related suppliers should be careful not to overpay commissions as overpayment can cause an IC-DISC to lose its tax-exempt status.
In line with the reasonable estimate of the commission payment, Treas. Reg. 1.994-1(e)(5) provides for a 90-day period in which commission payments can be trued up. When the estimated commission payment is lower than the actual commission reported on the tax return, a related supplier has 90 days from the date of adjustment to make a corrective payment.
Finally, the absence of an extension deadline will simplify tax season filings for IC-DISC owners. Internal Revenue Code §6072(b) states that IC-DISC tax returns are due the 15th day of the 9th month following the end of the company’s tax year. This means that calendar year IC-DISCs don’t need to file an extension in March or April when their related supplier does so. However, states may not be as lenient as the IRS so preparers should still be wary of state requirements.
Please refer to the table below as a quick reference guide for the annual IC-DISC deadlines.
For questions or to speak with a member of Withum’s Tax Services Group, please contact us by filling out the form below.