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IRS Clarifies Section 199 Guidance for Businesses Involved in Acquisitions and Dispositions of Businesses by Angie Adames, CPA


Posted on November 17, 2015 by Angie Adames

The Section 199 Domestic Production Activity Deduction (DPAD) is a significant tax savings tool for qualifying business that sell, rent, lease or exchange property that is manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States. The deduction is equal to the lesser of 9 percent of taxable income or the income generated from the qualified production activity. The amount of the deduction allowable under Section 199 for any taxable year should not exceed 50 percent of the W-2 wages of the taxpayer for the taxable year.  Recently, the IRS issued temporary and proposed regulations (Treasury Decision 9731) clarifying how businesses should calculate W-2 wages when applying the Section 199 DPAD during a taxable year in which:

Effective for tax years beginning on or after August 27, 2015, a business involved in an acquisition or disposition, including a formation, an incorporation, a reorganization, a liquidation, or a purchase or sale of assets, must allocate W-2 wages based on the period in which the employees of the acquired or disposed of trade or business were employed by the taxpayer, regardless of which method is used for reporting W-2 wages on Form W-2. If a taxpayer has a short taxable year that does not contain a calendar year ending during such short taxable year, wages paid to employees for employment by such taxpayer are treated as W-2 wages for such short taxable year for purposes of Section 199.

About the Author: Angie Adames, CPA, is a senior manager  with the Tax Services practice of Berkowitz Pollack Brant, where she provides  tax and consulting services to real estate companies, manufacturers and closely  held business. She can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.