A common question we address as IC-DISC experts is whether or not exporting to certain countries can impact a company’s ability to take advantage of this incentive. Although it will not affect DISC eligibility, a company must report if any business transpires between itself and/or any of its affiliates and boycott countries.
As of December 9th, 2014 the treasury published a list of boycott countries. The list is as follows:
- Saudi Arabia;
- United Arab Emirates; and
If a company exports to any of the aforementioned countries, Form 5713 must be filed to recognize the transaction(s). The form asks general information like any other federal tax return on the first page and the rest consists of yes or no questions about the activities involving boycott countries. Each boycott country business occurs with has to be listed out in certain applicable sections as well. The form is due when the company’s and/or any affiliates federal income tax returns are due, including extensions, and also should be attached to the return. For more details relating to the form, access the instructions via the IRS website.
In conclusion, exporting to a boycott country does not deem a company ineligible to utilize the DISC tax incentive. The transactions, however, just need to be reported using Form 5713. Penalties can apply for any noncompliance. As stated in the form’s instructions under penalties, “Willful failure to file Form 5713 may result in: a $25,000 fine, imprisonment for no more than 1 year, or both.”†
† IRS Form 5713 Instructions (http://www.irs.gov/pub/irs-pdf/i5713.pdf)