What do manufacturers and architecture/engineering firms have in common? If their service or product ends up offshore, the IRS sees them both as exporters, which can save you a lot of money. To qualify for these benefits, the actual work can be performed on U.S. soil but the building or structure must be located outside the United States. Some on-site supervision may qualify as well.
For years, these service providers should have benefited significantly under the tax rules because their services qualify as “export goods” under federal income tax guidelines, which allows them to exclude a portion of those related profits from taxation. Recent legislation has created a third opportunity, the manufacturers’ deduction, which allows these service providers an opportunity to triple-dip in tax savings, but action must be taken quickly because the door won’t be open much longer.
The first tax break for architecture firms that perform services for projects outside the U.S. is the IC-DISC. The IC-DISC is a separate corporation established to receive tax deductible commissions from the exporting company. The “commissions” paid to an ICDISC are computed in accordance with provisions of the Internal Revenue Code and are generally equal to the greater of 50 percent of export profit or 4 percent of export gross receipts. The IC-DISC must be in existence when the qualifying sales are shipped.
Tax savings apply to architectural work