Introducing DISC Grouping and Transaction-by-Transaction Methodology
Robert Feinschreiber, Attorney & Counselor
Margaret Kent, Attorney & Counselor
ExportDISC.com

The DISC grouping process and the transaction-by-transaction method frequently impact the allocation of profits between a DISC and its related supplier:

  • A DISC and its related supplier can increase their section 994 pricing benefits to the DISC in many circumstances, doing so by applying DISC grouping and transaction-by-transaction methodology.
  • On the other hand, the DISC and its related supplier might diminish section 994 pricing benefits to the DISC in many other circumstances, doing so by applying that same DISC grouping and transaction-by-transaction methodology.

We examine combinations of transactions that can advantageous, and transactions that can be detrimental. This analysis presupposes that the reader is already familiar with DISC pricing.[1] We specifically examine transactions having a profitability that is between 4 percent and 8 percent, based on combined taxable income divided by gross receipts, by examining two grouping patterns:

  • Transactions having a profitability of more than 8 percent
  • Transactions having a profitability between zero and 4 percent

This article provides an introduction to grouping and transaction-by-transaction methodology, and specifically examines the benefits and detriments of applying grouping and transaction-by-transaction methodologies to two transaction categories:

  • Transactions having a profitability of more than 8 percent, potentially combining with transactions having a profitability between 4 percent and 8 percent. This grouping pattern is disadvantageous, and we’ll explain why the disadvantage occurs.   
  • Transactions having a profitability between 4 percent and 8 percent, potentially combining with transactions having a profitability between 0 and 4 percent. This grouping pattern is advantageous, and we’ll explain why the advantage occurs.

DISC Grouping and Transaction-by-Transaction Regulations

The taxpayer’s understanding of the DISC pricing methods is essential for the DISC qualification and for maximizing DISC benefits.[2] This analysis describes transactional grouping requirements under section 1.994-1(c)(7), specifically examining empirical practical grouping strategies.[3] Grouping, as we shall see, can have a major impact,
[1] Feinschreiber, R., and Kent, M., Understanding the DISC Pricing Methods, Corporate Business Taxation Monthly, June 2006, 23-36.

[2] Feinschreiber, Domestic International Sales Corporations, Practising Law Institute, 1978, Part III, 207-284: Feinschreiber, New Strategies for Increasing DISC Benefits, 44 Financial Executive 32, 1976.

[3] Napp Systems, Inc., 65 TCM 2567, Dec. 49,022(M), TC Memo 1993-196; Feinschreiber, Domestic International Sales Corporations, Practising Law Institute, 1978, Chapter 11, pp. 247-274; Feinschreiber, How to Aggregate DISC Sales to Make Use of the Deferral, 36 J. Tax 300, 1972.


For a copy of the entire article please contact:
ExportDISC Management Company
pursuant to Section 993(a)(1)(H) and Section 993(b)(2)
Robert Feinschreiber & Margaret Kent

1121 Crandon Blvd. F301
Key Biscayne, FL 33149
Primary Phone: 305.361.5800
or 305.505.9200
Fax: 305.365.2276
multijur@aol.com
www.ExportDISC.com
www.TransferPricingConsortium.com
www.TaxMalpractice.com
www.ProductionIncentive.com
disc grouping, export disc, transaction-by-transaction, methodology