To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
October 21, 2005
JS-2985
TREASURY AND IRS ISSUE PROPOSED REGULATIONS ON DOMESTIC PRODUCTION ACTIVITIES DEDUCTION
Today, the Treasury Department and IRS issued proposed regulations under Code section 199 on the recently enacted deduction relating to domestic production activities. The proposed regulations expand on the initial guidance, Notice 2005-14, that was issued in January 2005.
The section 199 deduction relating to domestic production activities was enacted in October 2004 as part of the American Jobs Creation Act. The provision generally allows companies to deduct three percent of income from domestic production activities for 2005 and, by 2010, nine percent of such income. The activities eligible for the deduction include not only the manufacture of personal property such as clothing, goods, and food, but also software development, film and music production, the production of electricity, natural gas, or water, and construction, engineering and architectural services.
The proposed regulations include many of the rules contained in the initial guidance issued in January. In addition, in response to over eighty public comment letters received, the proposed regulations provide many more comprehensive rules, definitions, and examples to assist taxpayers implement this new provision.
The regulations are proposed to be effective for taxable years beginning after December 31, 2004, and taxable years of pass-thru entities beginning after December 31, 2004. Until the proposed regulations are finalized, taxpayers are generally permitted to rely on the Notice as well as the proposed regulations.
REPORTS