The IRS published a proposed regulation to clarify Code Section 199, the Domestic Production Activities Deduction. Manufactured, produced, grown, or extracted (MPGE) includes that plus installing, developing, improving, and creating Qualified Production Property. It also includes making QPP out of scrap, salvage, or junk by processing manipulating, or refining or changing the form of an article or by combining, assembling two or more articles.
This activity includes cultivating soil, raising livestock, fishing, and mining materials.
The IRS also clarified regulations for construction. In order for this deduction to apply, they must be construction activities that are more than the mere approval and authorization of payments. Taxpayers with oil related activities (desiring this deduction) does not include transportation or distribution of oil.
Whenever guidance comes up regarding Code Section 199, I always take notice of the guidance. The Domestic Production Activities Deduction is still relatively new, just being enhanced within the last 15 years. Practitioners are still afraid of this one though, because there is not a lot of guidance. Most of the Internal Revenue Code has cavernous sums of regulations, cases, memos, and interpretive guidance. With the DPAD, essentially none.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors