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Archive for John Manning

Section 199 Repeal Opportunities

With section 199 repealed for tax years beginning after 12/31/17, now is the time for a final review of domestic production activity deductions (“DPAD”).  A properly conducted review will optimize 2017 DPAD and identify refund opportunities in prior tax years.

With internal resources likely committed to 2017 compliance and implementation of the Tax Cuts and Jobs Act, chief tax officers should consider success-based-fee DPAD reviews for years prior to 2017.   Read more

CCA 201446018 – IRS Addresses Non-compensatory Prior Period Costs Under §199

In Industry Director Directive on Domestic Production Deduction #3 (3/4/2009) (the “IDD”), the IRS addressed the treatment of post-2004 compensation deductions (e.g., pension expense and medical-related costs) that relate to services rendered prior to 2005. The IDD held that the treatment of such deductions requires an analysis under the “section 861 method”. In lieu of detailed support regarding the lack of a factual relationship between a deduction and domestic production gross receipts (“DPGR”), the IDD allowed taxpayers to treat such deductions as not properly allocable to DPGR, subject to a 10% haircut. The haircut relates to the — sometimes real, sometimes theoretical – possibility that some of the services rendered prior to 2005 may relate to the production of (post-2004) DPGR. The scope of the IDD was limited to expenses not subject to §263A. Read more

Revisiting Your Section 199 Results

It seems hard to believe, but 2014 is the 10th year in which an IRC section 199 domestic production activities deduction (“DPAD”) may be claimed.  Enacted as a replacement regime for the extraterritorial income exclusion, section 199 allows “manufacturers” to reduce their federal income tax rate by up to 3.15%.  The permanent tax benefit increases earnings per share and cash flow.

Most taxpayers that have “domestic production activities” are capturing the tax benefit by employing a process devised in 2005 either internally or with the assistance of an accounting firm. Depending on the sophistication of the taxpayer, and the resources it has committed to section 199 analysis, the process for capturing the benefit may have evolved considerably (or not) since its initial implementation. Read more