LOSS SALES CAN BE USED TO MAXIMIZE DISC PROFIT
by Robert Feinschreiber
Oppenheim, Appe1, Dixon & Co.

DISC profit can be maximized by including in the DISC certain export sales which generate a loss to the DISC. This strange result occurs because of the interrelationship between the two safe-haven rules for computing DISC profit: 4 percent of gross receipts or 50 percent of combined taxable income, and because of the flexible rules provided for grouping DISC sales.

DISC income can be determined on a transaction-by-transaction basis, or transactions can be grouped by product or by product line, providing the grouping conforms to any recognized industry or trade usage. Because of this wide latitude, many groupings are permissible.2 If loss sales are incurred, it may be possible to aggregate some or all of them with profitable transactions. This analysis demonstrates that selective inclusion and aggregation can be advantageous.

We first turn our attention to the "shell" DISC situation in which there are no export promotion expenses. Let P represent DISC profit, G represent gross receipts, and C represent combined taxable income. Therefore, C/G is the profit margin. Where C/G is greater than .08, 50% of combined taxable income will exceed 4% of gross receipts. Where C/G is between .04 and .08, 4% of gross receipts will exceed 50% of combined taxable income. Where C/G is less than .04, DISC profit will be limited to combined taxable income because of no-loss rule. Thus,

C/G >/ .08 P=C/2
.08 >/ C/G >/ .04 P=.04G
.04 >/ C/G >/ P=C

For a copy of the entire article please contact us:
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
combined taxable income, loss sales, disc, export, robert feinschreiber, margaret kent