THE INCREMENTAL RULES
A DISC is now required to distribute at least half of its income annually. The distribution can be an actual distribution or a deemed distribution, but in either event the income is taxed to the DISC's shareholders.1
The portion of DISC income that must be distributed has been increased by the Tax Reform Act of 1976. Now, additional amounts may be required to be distributed under the incremental rules and the military property rules. This chapter examines the fundamental aspects of the incremental rule,2 the computational format,3 the small DISC exemption,4 and related provisions for military income.5
Other aspects of the incremental rule are not discussed because they require prior clarification in the form of regulations,6 which have not yet been issued.
Thus, we do not consider such
problems as the impact of the incremental rule on multiple DISCs,
particularly when they have different taxable years, and problems
caused by a separation of a DISC from its underlying business.7
1. See REPORT OF THE
SENATE FIN. COMM. AND REPORT OF THE HOUSE COMM. ON WAYS AND MEANS
CONCERNING THE TAX REFORM ACT OF 1976, PUB. L. No. 94.455; Feinschreiber,
Understanding the DISC Incremental fllesJ3INT.LTAXJ.305 (1977).
2. §§ 995 (b) (1) (E),995 (e),995(f).
3. §§ 995 (e) (1 ),995 (e) (2),995 (e) (3),995(e) (4),995(e)(5). 4. §995(f).
7. §§ 995(e) (6),995(e) (7),995(e) (8),995(e) (9),995(e)(10).