Sec 199 DPAD

The § 199 Domestic Production Activity Deduction, also referred to as the domestic manufacturing deduction, allows businesses with qualified production activities to take a tax deduction from net income. Businesses engaged in domestic production activities, including mining, oil extraction, farming, construction, architecture, engineering, and the production of software and film can take advantage of this tax break.

The deduction equals a percentage of the net income from eligible activities: 3% in 2005–2006; 6% for 2007–2009; and 9% after 2009. As the deduction rate has increased over the years, so has IRS scrutiny. The DPAD is now considered a Tier 1 audit issue by the IRS and requires additional due diligence to ensure compliance and substantiation of company practices.

Capturing the § 199 deduction can become a complex and time consuming process. If the deduction is calculated incorrectly or lacks substantiation, your business could face additional taxes, penalties, and interest.

The TRCG Advantage

TRCG can help your company ensure identification of all eligible activities as well as the most accurate calculation of the deserved deduction. TRCG’s consultants have experience across a variety of industries in order to identify and ensure specific compliance requirements. Typical requirements include:

  • Documentation for qualifying activities and income.
  • Proper allocation method for nonqualified income and embedded services.
  • Consistent allocation method for §861 apportionment of deductions.
  • Application of the wage and income limitations.
  • Calculations in IRS-ready format.