As part of the American Jobs Creation Act of 2004, Congress created a new deduction for income attributable to domestic production activities. This deduction is computed as a percentage of the taxpayer's profits from domestic production and increases as these profits increase. In an attempt to respond to taxpayers' questions on this complex new provision, the IRS issued preliminary guidance in January 2005 through Notice 2005-14. It subsequently received more than 80 comment letters, with most requesting either changes or more guidance. Recently issued proposed regulations provide additional guidance and indicate that taxpayers may rely on both the notice and the proposed regulations until final regulations are published sometime in 2006. Taxpayers whose accounting systems are not set up to provide the information necessary to compute this deduction should do a cost-benefit analysis before implementing a costly new system just to take advantage of this complex deduction.
DETERMINING DOMESTIC PRODUCTION GROSS RECEIPTS
IRC Section 199(c)(4)(A) defines DPGR as the taxpayer's gross receipts that are derived from any lease, rental, license, sale, exchange, or other disposition of:
β’ qualifying production property (QPP) that is manufactured, produced, grown, or D e p a r t m e n t s 101