PRICING AND PROFITS
DISC benefits depend, to a large extent, on the profits a DISC can earn. Safe-haven rules enable a DISC to earn income from transactions with related parties even when the DISC has no sub- stance (other than the $2,500 in capital) and performs no activities! A DISC that engages in transactions with its affiliates typically has little if any real substance. In fact, most DISCs are paper companies and cannot earn any income without these safe-haven rules. These safe-haven rules supersede the general provisions that otherwise permit the IRS to allocate all or virtually all of the profits away from the DISC to the DISC's affiliate.2
The safe-haven rules for determining DISC profit are also called intercompany pricing rules.3 These rules are generally structured in terms of sales transactions,4 but their scope is broader and encom-
1. Reg. §§ 1.994-1 (a) ( 1 ),1.994-1 (a) (2).
2. § 482.
4. Reg.§§ 1.994-1(b)(1),1.994-1(c).