Continuing with my list of ten news items and activities from 2015 that I think have particular tax policy relevance. Today, for my fourth item is an odd and unfortunate way that the IRS is telling us they disagree with a 2013 court decision. In August 2015, the IRS issued proposed regulations under Section 199, Income attributable to domestic production activities – REG–136459–09 (8/27/15). This provision was added in 2004 and provides a “bonus” deduction for taxpayers engaged in domestic manufacturing which is broadly defined to include some construction, film production, and software development. It is a fairly complex provision that involves numerous definitions and allocations to identify the specified income that then generally produces a 9% deduction for the taxpayer.
The issue helps show the complexity that is involved when special rules exist. Special rules require precise definitions to know what qualifies and what does not. The particular issue I’m referring to what constitutes minor assembly (no 199 deduction) versus production (generates a 199 deduction).
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