The question of which taxpayer may claim a deduction under §199 when it can be argued that one contracted with the other to perform a “qualified activity” can become complicated. In Chief Counsel Advice 201630015 the question arose about whether a professional sports league might be eligible to claim the deduction for a “qualified film” for game broadcasts conducted by a network under its contract.

In the case of Precision Dose v. United States, 116 AFTR 2d ¶ 2015-5272, the United States District Court for the Northern District of Illinois, Western Division looked into whether a company qualified for the domestic production deduction under IRC §199.

The IRS has issued temporary regulations dealing with allocation of W-2 wages for purposes of the domestic production activities deduction (DPAD) of IRC §199, along with proposed regulations dealing with that topic along with other issues related to DPAD.   The temporary regulations are found in TD 9731 while the proposed regulations were released in REG-136459-09.

The IRS Large Business & International Division issued a memorandum outlining activities the division contends generally do not meet the definition of “manufactured, produced or grown” under §199 for computing the deduction for domestic production activities.  LB&I Memorandum LB&I-04-0315-001 provides a specific list of “non-qualifying” activities.