Industry Today recently published an article by Diane Tinney, Director of Product Management with Bloomberg Tax, on navigating Section 199 through the hurdles of tax reform and IRS scrutiny.
The Section 199 deduction, also known as the Domestic Production Activities Deduction (DPAD), has been used by U.S. manufacturers since 2004 as part of their tax strategy. In light of tax reform efforts, conflicting court rulings, and a new IRS audit approach, continuing to comply with Section 199 has become extremely challenging.
Areas of Concern
As Diane Tinney pointed out there are a few key areas that are proving especially problematic for tax and finance professionals:
- Calculating Qualified Production Activities Income (QPAI). A broad definition and complex reporting requirements make computing accurate deductions a challenge.
- Conflicting Court Rulings. Adding to the confusion surrounding Section 199 are court rulings that do not clearly define whether labeling and packaging activities qualify as Manufactured, Produced, Grown, or Extracted (MPGE) activities.
- IRS Audit Changes. In 2017, the IRS announced the creation of a specific audit campaign to validate the use of a Section 199 deduction by Multichannel Video-Programming Distributors (MVPDs) and broadcasters.
- Tax Reform. The Republican-led tax reform plan may eliminate Section 199 deductions entirely.
Advice for Manufacturers
For insights into navigating Section 199 deductions, manufacturers can reference this informative post, "How Businesses can Maximize the Section 199 Deduction". For a more long-term, strategic look at tax planning and the potential impacts of tax reform, we recommend modeling out different scenarios using solutions such as, Corporate Tax Analyzer™ and State Tax Analyzer™. These Bloomberg Tax software solutions have the latest tax law built right in to help you make the most accurate and informed tax planning decisions.