Income Attributable to Domestic Production Activities; Correction, 5-7 [E6-22019]
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Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Rules and Regulations
(3) You may review copies at the National
Archives and Records Administration
(NARA). For information on the availability
of this material at NARA, call (202) 741–
6030, or go to: https://www.archives.gov//
federal-register/cfr/ibr-locations.html.
Issued in Burlington, Massachusetts, on
December 21, 2006.
Peter A. White,
Acting Manager, Engine and Propeller
Directorate, Aircraft Certification Service.
[FR Doc. E6–22272 Filed 12–29–06; 8:45 am]
BILLING CODE 4910–13–P
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read, in part, as
follows:
I
Authority: 26 U.S.C. 7805 * * *
§ 1.199–1
[Corrected]
Par. 2. Section 1.199–1(b)(1) is
amended by revising the first sentence
of the paragraph to read as follows:
I
§ 1.199–1 Income attributable to domestic
production activities.
*
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9263]
RIN 1545–BE33
Income Attributable to Domestic
Production Activities; Correction
Internal Revenue Service (IRS),
Treasury.
ACTION: Correcting amendment.
AGENCY:
This document contains
corrections to final regulations which
were published in the Federal Register
on Thursday, June 1, 2006, (71 FR
31268), relating to the deduction for
income attributable to domestic
production activities under section 199
of the Internal Revenue Code (Code).
DATES: This correction is effective June
1, 2006.
FOR FURTHER INFORMATION CONTACT: Paul
Handleman or Lauren Ross Taylor at
(202) 622–3040 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
SUMMARY:
*
*
*
*
(b) * * *
(1) In general. For purposes of
paragraph (a) of this section, the
definition of taxable income under
section 63 applies, except that taxable
income (or alternative minimum taxable
income, if applicable) is determined
without regard to section 199 and
without regard to any amount excluded
from gross income pursuant to section
114 or pursuant to section 101(d) of the
American Jobs Creation Act of 2004,
Public Law 108–357 (118 Stat. 1418)
(Act). * * *
*
*
*
*
*
§ 1.199–2
[Corrected]
I Par. 3. Section 1.199–2 is amended by
revising the first sentence of paragraph
(a)(3)(ii) and the last sentence of
paragraph (e)(3) to read as follows:
§ 1.199–2
Wage limitation.
On June 1, 2006, final regulations (TD
9263) were published in the Federal
Register at 71 FR 31268. These
regulations contain errors that may
prove to be misleading and are in need
of clarification.
(a) * * *
(3) * * *
(ii) Corrected return filed to correct a
return that was filed within 60 days of
the due date. If a corrected information
return (Return B) is filed with SSA on
or before the 60th day after the due date
(including extensions) of Return B to
correct an information return (Return A)
that was filed with SSA on or before the
60th day after the due date (including
extensions) of the information return
(Return A) and paragraph (a)(3)(iii) of
this section does not apply, then the
wage information on Return B must be
included in determining W–2
wages.* * *
*
*
*
*
*
(e) * * *
(3) * * * For example, see Rev. Proc.
2006–22 (2006–23 I.R.B. 1033). (see
§ 601.601(d)(2) of this chapter).
List of Subjects in 26 CFR Part 1
§ 1.199–3
Background
The final regulations (TD 9263) that
are subject to this correction are under
section 199 of the Internal Revenue
Code.
Need for Correction
pwalker on PROD1PC71 with RULES
Income taxes, Reporting and
recordkeeping requirements.
Correction of Publication
Accordingly, 26 CFR Part 1 is
corrected by making the following
correcting amendments:
I
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[Corrected]
Par. 4. Section 1.199–3(l)(4)(iv)(A) is
amended by revising the first sentence
of the paragraph to read as follows:
I
§ 1.199–3
receipts.
Domestic production gross
*
*
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*
Frm 00005
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Fmt 4700
*
Sfmt 4700
5
(l) * * *
(4) * * *
(iv) * * *
(A) * * * DPGR. Notwithstanding
paragraphs (l)(4)(i), (ii), and (iii) of this
section, if less than 5 percent of a
taxpayer’s gross receipts derived from a
sale, exchange, or other disposition of
utilities are attributable to the
transmission or distribution of the
utilities and the storage of potable water
after completion of treatment of the
potable water, then the gross receipts
derived from the lease, rental, license,
sale, exchange, or other disposition of
the utilities that are attributable to the
transmission and distribution of the
utilities and the storage of potable water
after completion of treatment of the
potable water may be treated as being
DPGR (assuming all other requirements
of this section are met). * * *
*
*
*
*
*
§ 1.199–4
[Corrected]
Par. 5. Section 1.199–4(d)(6) is
amended by revising paragraph
(i) of Examples 1 and 2 to read as
follows:
I
§ 1.199–4 Costs allocable to domestic
production gross receipts.
*
*
*
(d) * * *
(6) * * *
*
*
Example 1. * * *
(i) Facts. X, a United States corporation
that is not a member of an expanded
affiliated group (EAG) (as defined in § 1.199–
7), engages in activities that generate both
DPGR and non-DPGR. All of X’s production
activities that generate DPGR are within
Standard Industrial Classification (SIC)
Industry Group AAA (SIC AAA). All of X’s
production activities that generate non-DPGR
are within SIC Industry Group BBB (SIC
BBB). X is able to specifically identify CGS
allocable to DPGR and to non-DPGR. X incurs
$900 of research and experimentation
expenses (R&E) that are deductible under
section 174, $300 of which are performed
with respect to SIC AAA and $600 of which
are performed with respect to SIC BBB. None
of the R&E is legally mandated R&E as
described in § 1.861–17(a)(4) and none of the
R&E is included in CGS. X incurs section 162
selling expenses that are not includible in
CGS and are definitely related to all of X’s
gross income. For 2010, the adjusted basis of
X’s assets is $5,000, $4,000 of which
generates gross income attributable to DPGR
and $1,000 of which generates gross income
attributable to non-DPGR. For 2010, X’s
taxable income is $1,380 based on the
following Federal income tax items: * * *
*
*
*
*
*
Example 2. * * *
(i) Facts. The facts are the same as in
Example 1 except that X owns stock in Y, a
United States corporation, equal to 75% of
the total voting power of stock of Y and 80%
of the total value of stock in Y. X and Y are
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03JAR1
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Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Rules and Regulations
not members of an affiliated group as defined
in section 1504(a). Accordingly, the rules of
§ 1.861–14T do not apply to X’s and Y’s
selling expenses, R&E, and charitable
contributions. X and Y are, however,
members of an affiliated group for purposes
of allocating and apportioning interest
expense (see § 1.861–11T(d)(6)) and are also
members of an EAG. For 2010, the adjusted
basis of Y’s assets is $45,000, $21,000 of
which generates gross income attributable to
DPGR and $24,000 of which generates gross
income attributable to non-DPGR. All of Y’s
activities that generate DPGR are within SIC
Industry Group AAA (SIC AAA). All of Y’s
activities that generate non-DPGR are within
SIC Industry Group BBB (SIC BBB). None of
X’s and Y’s sales are to each other. Y is not
able to specifically identify CGS allocable to
DPGR and non-DPGR. In this case, because
CGS is definitely related under the facts and
circumstances to all of Y’s gross receipts,
apportionment of CGS between DPGR and
non-DPGR based on gross receipts is
appropriate. For 2010, Y’s taxable income is
$1,910 based on the following Federal
income tax items: * * *
*
*
§ 1.199–6
*
*
unrelated persons and B takes the gross
receipts attributable to the rental of the
machinery into account under its methods of
accounting in 2007, 2008, and 2009. In
addition, as of the close of business on
December 31, 2008, A and B cease to be
members of the same EAG. With respect to
the machinery acquired from C and the
unrelated persons, B’s gross receipts
attributable to the rental of the machinery in
2007, 2008, and 2009 are non-DPGR because
no member of the EAG MPGE the machinery
and because C does not qualify as an EAG
partnership. With respect to machinery
acquired from A, B’s gross receipts in 2007
and 2008 attributable to the rental of the
machinery are DPGR because at the time B
takes into account the gross receipts derived
from the rental of the machinery under its
methods of accounting, B is a member of the
same EAG as A and B is treated as
conducting A’s previous MPGE activities.
However, with respect to the rental receipts
in 2009, because A and B are not members
of the same EAG in 2009, B’s rental receipts
are non-DPGR.
*
*
[Corrected]
I Par. 6. Section 1.199–6 is amended as
follows:
I 1. The last sentence of paragraph (g),
is revised.
I 2. The last sentence of Example 2 (i)
in paragraph (m) is revised.
The revisions read as follows:
*
*
(e) * * *
*
*
Example 10. (i) Facts. Corporation P owns
all of the stock of Corporations S and T, and
P, S, and T file a consolidated Federal
income tax return on a calendar year basis.
In 2007, P MPGE QPP in the United States
at a cost of $1,000. On November 30, 2007,
P sells the QPP to S for $2,500. On February
28, 2008, P disposes of 60% of the stock of
S. On June 30, 2008, S sells the QPP to an
unrelated person for $3,000.
§ 1.199–6 Agricultural and horticultural
cooperatives.
*
*
Par. 8. Section 1.199–8 is amended by
revising paragraph (h) to read as
follows:
*
*
*
*
(g) Written notice to patrons. * * *
The cooperative must report the amount
of the patron’s section 199 deduction on
Form 1099–PATR, ‘‘Taxable
Distributions Received From
Cooperatives,’’ issued to the patron.
*
*
*
*
*
(m) * * *
Example 2. (i) * * * Cooperative X must
report the amount of Patron A’s section 199
deduction on Form 1099–PATR, ‘‘Taxable
Distributions Received From Cooperatives,’’
issued to Patron A for the calendar year 2008.
*
*
§ 1.199–7
*
*
*
[Corrected]
I Par. 7. Section 1.199–7 is amended as
follows:
I 1. Example 3 in paragraph (a)(4) is
revised.
I 2. Example 10 in paragraph (e) is
revised.
The revisions read as follows:
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§ 1.199–7
Expanded affiliated groups.
(a) * * *
(4) * * *
Example 3. The facts are the same as in
Example 2 except that rather than reselling
the machinery, B rents the machinery to
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17:09 Dec 29, 2006
Jkt 211001
*
§ 1.199–8
*
*
*
year, the taxpayer takes into account a
proportionate share of those losses or
deductions in computing it QPAI for
that later taxable year. Losses or
deductions of the taxpayer that are
disallowed for taxable years beginning
on or before December 31, 2004, are not
taken into account in a later year for
purposes of computing the taxpayer’s
QPAI and the wage limitation of section
199(d)(1)(A)(iii) under § 1.199–9 for that
taxable year, regardless of whether the
losses or deductions are allowed for
other purposes. For taxpayers that are
partners in partnerships, see § 1.199–
9(b)(2). For taxpayers that are
shareholders in S corporations, see
§ 1.199–9(c)(2).
*
*
*
*
*
§ 1.199–9
§ 1.199–9 Application of section 199 to
pass-thru entities for taxable years
beginning on or before May 17, 2006, the
enactment date of the Tax Increase
Prevention and Reconciliation Act of 2005.
*
[Corrected]
I
§ 1.199–8
Other rules.
*
*
*
*
*
(h) Disallowed losses or deductions.
Except as provided by publication in the
Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii)(b) of this chapter),
losses or deductions of a taxpayer that
otherwise would be taken into account
in computing the taxpayer’s section 199
deduction are taken into account only if
and to the extent the deductions are not
disallowed by section 465 or 469, or any
other provision of the Code. If only a
portion of the taxpayer’s share of the
losses or deductions is allowed for a
taxable year, the proportionate share of
those allowable losses or deductions
that are allocated to the taxpayer’s
qualified production activities,
determined in a manner consistent with
sections 465 and 469, and any other
applicable provision of the Code, is
taken into account in computing QPAI
for purposes of the section 199
deduction for that taxable year. To the
extent that any of the disallowed losses
or deductions are allowed in a later
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Fmt 4700
Sfmt 4700
[Corrected]
Par. 9. Section 1.199–9(b)(6) is
amended as follows:
I 1. By revising Example 1 paragraphs
(i), (iii)(B)(1), and the seventh sentence
of (iii)(B)(2).
I 2. By revising Example 2 paragraphs
(i), and (iii)(B)(1), and the table
following (iii)(B)(3).
I 3. Paragraph (h) is revised.
The revisions read as follows:
I
*
*
(b) * * *
(6) * * *
*
*
Example 1. * * * (i) Partnership Federal
income tax items. X and Y, unrelated United
States corporations, are each 50% partners in
PRS, a partnership that engages in
production activities that generate both
DPGR and non-DPGR. X and Y share all
items of income, gain, loss, deduction, and
credit 50% each. Both X and Y are engaged
in a trade or business. PRS is not able to
specifically identify CGS allocable to DPGR
and non-DPGR. In this case, because CGS is
definitely related under the facts and
circumstances to all of PRS’s gross income,
apportionment of CGS between DPGR and
non-DPGR based on gross receipts is
appropriate. For 2006, the adjusted basis of
PRS’s business assets is $5,000, $4,000 of
which generate gross income attributable to
DPGR and $1,000 of which generate gross
income attributable to non-DPGR. For 2006,
PRS has the following Federal income items:
* * *
*
*
*
*
*
(iii) * * *
(B) * * * (1) For 2006, in addition to the
activities of PRS, Y engages in production
activities that generate both DPGR and nonDPGR. Y is able to specifically identify CGS
allocable to DPGR and to non-DPGR. For
2006, the adjusted basis of Y’s non-PRS
assets attributable to its production activities
that generate DPGR is $8,000 and to other
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Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Rules and Regulations
production activities that generate non-DPGR
is $2,000. Y has no other assets. Y has the
following Federal income tax items relating
to its non-PRS activities: * * *
(2) * * * Y has $1,290 of gross income
attributable to DPGR ($3,000 DPGR ($1,500
from PRS and $1,500 from non-PRS
activities)—$1,710 CGS ($810 from PRS and
$900 from non-PRS activities)). * * *
*
*
*
*
*
Example 2. * * * (i) Partnership items of
income, gain, loss, deduction or credit. X and
Y, unrelated United States corporations each
of which is engaged in a trade or business,
are partners in PRS, a partnership that
engages in production activities that generate
both DPGR and non-DPGR. Neither X nor Y
is a member of an affiliated group. X and Y
share all items of income, gain, loss,
deduction, and credit 50% each. All of PRS’s
domestic production activities that generate
DPGR are within Standard Industrial
Classification (SIC) Industry Group AAA (SIC
AAA). All of PRS’s production activities that
generate non-DPGR are within SIC Industry
Group BBB (SIC BBB). PRS is not able to
specifically identify CGS allocable to DPGR
and to non-DPGR and, therefore, apportions
CGS to DPGR and non-DPGR based on its
gross receipts. PRS incurs $900 of research
and experimentation expenses (R&E) that are
deductible under section 174, $300 of which
are performed with respect to SIC AAA and
$600 of which are performed with respect to
SIC BBB. None of the R&E is legally
mandated R&E as described in § 1.861–
17(a)(4) and none is included in CGS. PRS
incurs section 162 selling expenses (that
include W–2 wage expense) that are not
includible in CGS and are definitely related
to all of PRS’s gross income. For 2006, PRS
has the following Federal income tax items:
* * *
*
*
*
*
*
7
(iii) * * *
(B) * * * (1) For 2006, in addition to
the activities of PRS, Y engages in
domestic production activities that
generate both DPGR and non-DPGR.
With respect to those non-PRS
activities, Y is not able to specifically
identify CGS allocable to DPGR and to
non-DPGR. In this case, because CGS is
definitely related under the facts and
circumstances to all of Y’s non-PRS
gross receipts, apportionment of CGS
between DPGR and non-DPGR based on
Y’s non-PRS gross receipts is
appropriate. For 2006, Y has the
following non-PRS Federal income tax
items: * * *
*
*
*
*
*
(3) * * *
DPGR ($4,500 DPGR ($1,500 from PRS and $3,000 from non-PRS activities)) ........................................................................
CGS ($600 from sales of products by PRS and $1,500 from non-PRS activities) ......................................................................
Section 162 selling expenses (including W–2 wages) ($420 from PRS + $540 from non-PRS activities) x ($4,500 DPGR/
$9,000 total gross receipts) .......................................................................................................................................................
Section 174 R&E–SIC AAA ($150 from PRS and $300 from non-PRS activities) .......................................................................
Section 174 R&E–SIC BBB ($300 from PRS + $450 from non-PRS activities) x ($1,500 DPGR/$6,000 total gross receipts
allocated to SIC BBB ($1,500 from PRS and $4,500 from non-PRS activities)) ......................................................................
$4,500
(2,100)
Y’s QPAI .....................................................................................................................................................................................
1,282
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*
*
*
*
*
(h) * * * Except as provided in
paragraph (i) of this section regarding
qualifying in-kind partnerships and
paragraph (j) of this section regarding
EAG partnerships, an owner of a passthru entity is not treated as conducting
the qualified production activities of the
pass-thru entity, and vice versa. This
rule applies to all partnerships,
including partnerships that have elected
out of subchapter K under section
761(a). Accordingly, if a partnership
MPGE QPP within the United States, or
produces a qualified film or produces
utilities in the United States, and
distributes or leases, rents, licenses,
sells, exchanges, or otherwise disposes
of such property to a partner who then,
without performing its own qualifying
MPGE or other production, leases, rents,
licenses, sells, exchanges, or otherwise
disposes of such property, then the
partner’s gross receipts from this latter
lease, rental, license, sale, exchange, or
other disposition are treated as nonDPGR. In addition, if a partner MPGE
QPP within the United States, or
produces a qualified film or produces
utilities in the United States, and
contributes or leases, rents, licenses,
sells, exchanges, or otherwise disposes
of such property to a partnership which
then, without performing its own
qualifying MPGE or other production,
leases, rents, licenses, sells, exchanges,
or otherwise disposes of such property,
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17:09 Dec 29, 2006
Jkt 211001
then the partnership’s gross receipts
from this latter disposition are treated as
non-DPGR.
*
*
*
*
*
Guy R. Traynor,
Federal Register Liaison, Legal Processing
Division, Associate Chief Counsel (Procedure
& Administration).
[FR Doc. E6–22019 Filed 12–29–06; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF LABOR
Occupational Safety and Health
Administration
29 CFR Part 1915
[Docket No. S–051A]
RIN 1218–AC16
Updating National Consensus
Standards in OSHA’s Standard for Fire
Protection in Shipyard Employment
Occupational Safety and Health
Administration (OSHA), Department of
Labor.
ACTION: Final rule; confirmation of
effective date.
AGENCY:
SUMMARY: OSHA is confirming the
effective date of its direct final rule for
shipyards that incorporated by reference
19 National Fire Protection Association
(NFPA) standards. The direct final rule
PO 00000
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Fmt 4700
Sfmt 4700
(480)
(450)
(188)
stated that it would become effective on
January 16, 2007 unless significant
adverse comment was received by
November 16, 2006. No adverse
comments were received. Therefore, the
rule will become effective on January
16, 2007.
DATES: The direct final rule published
on October 17, 2006 (71 FR 60843) is
effective January 16, 2007. For the
purpose of judicial review, OSHA
considers January 3, 2007 as the date of
issuance.
FOR FURTHER INFORMATION CONTACT:
Press Inquiries: Kevin Ropp, OSHA
Office of Communications, Room N–
3647, U.S. Department of Labor, 200
Constitution Avenue, NW., Washington,
DC 20210; telephone: (202) 693–1999.
General and technical information: Jim
Maddux, Director, Office of Maritime,
Directorate of Standards and Guidance,
Occupational Safety and Health
Administration, U.S. Department of
Labor, Room N–3609, 200 Constitution
Avenue, NW., Washington, DC 20210;
telephone (202) 693–1968.
ADDRESSES: In compliance with 28
U.S.C. 2112(a), OSHA designates the
Associate Solicitor for Occupational
Safety and Health as the recipient of
petitions for review of the final
standard. The Associate Solicitor may
be contacted at the Office of the
Solicitor, Room S–4004, U.S.
Department of Labor, 200 Constitution
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]]>Agencies
[Federal Register Volume 72, Number 1 (Wednesday, January 3, 2007)]
[Rules and Regulations]
[Pages 5-7]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-22019]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9263]
RIN 1545-BE33
Income Attributable to Domestic Production Activities; Correction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Correcting amendment.
-----------------------------------------------------------------------
SUMMARY: This document contains corrections to final regulations which
were published in the Federal Register on Thursday, June 1, 2006, (71
FR 31268), relating to the deduction for income attributable to
domestic production activities under section 199 of the Internal
Revenue Code (Code).
DATES: This correction is effective June 1, 2006.
FOR FURTHER INFORMATION CONTACT: Paul Handleman or Lauren Ross Taylor
at (202) 622-3040 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (TD 9263) that are subject to this correction
are under section 199 of the Internal Revenue Code.
Need for Correction
On June 1, 2006, final regulations (TD 9263) were published in the
Federal Register at 71 FR 31268. These regulations contain errors that
may prove to be misleading and are in need of clarification.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Correction of Publication
0
Accordingly, 26 CFR Part 1 is corrected by making the following
correcting amendments:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
Sec. 1.199-1 [Corrected]
0
Par. 2. Section 1.199-1(b)(1) is amended by revising the first sentence
of the paragraph to read as follows:
Sec. 1.199-1 Income attributable to domestic production activities.
* * * * *
(b) * * *
(1) In general. For purposes of paragraph (a) of this section, the
definition of taxable income under section 63 applies, except that
taxable income (or alternative minimum taxable income, if applicable)
is determined without regard to section 199 and without regard to any
amount excluded from gross income pursuant to section 114 or pursuant
to section 101(d) of the American Jobs Creation Act of 2004, Public Law
108-357 (118 Stat. 1418) (Act). * * *
* * * * *
Sec. 1.199-2 [Corrected]
0
Par. 3. Section 1.199-2 is amended by revising the first sentence of
paragraph (a)(3)(ii) and the last sentence of paragraph (e)(3) to read
as follows:
Sec. 1.199-2 Wage limitation.
(a) * * *
(3) * * *
(ii) Corrected return filed to correct a return that was filed
within 60 days of the due date. If a corrected information return
(Return B) is filed with SSA on or before the 60th day after the due
date (including extensions) of Return B to correct an information
return (Return A) that was filed with SSA on or before the 60th day
after the due date (including extensions) of the information return
(Return A) and paragraph (a)(3)(iii) of this section does not apply,
then the wage information on Return B must be included in determining
W-2 wages.* * *
* * * * *
(e) * * *
(3) * * * For example, see Rev. Proc. 2006-22 (2006-23 I.R.B.
1033). (see Sec. 601.601(d)(2) of this chapter).
Sec. 1.199-3 [Corrected]
0
Par. 4. Section 1.199-3(l)(4)(iv)(A) is amended by revising the first
sentence of the paragraph to read as follows:
Sec. 1.199-3 Domestic production gross receipts.
* * * * *
(l) * * *
(4) * * *
(iv) * * *
(A) * * * DPGR. Notwithstanding paragraphs (l)(4)(i), (ii), and
(iii) of this section, if less than 5 percent of a taxpayer's gross
receipts derived from a sale, exchange, or other disposition of
utilities are attributable to the transmission or distribution of the
utilities and the storage of potable water after completion of
treatment of the potable water, then the gross receipts derived from
the lease, rental, license, sale, exchange, or other disposition of the
utilities that are attributable to the transmission and distribution of
the utilities and the storage of potable water after completion of
treatment of the potable water may be treated as being DPGR (assuming
all other requirements of this section are met). * * *
* * * * *
Sec. 1.199-4 [Corrected]
0
Par. 5. Section 1.199-4(d)(6) is amended by revising paragraph
(i) of Examples 1 and 2 to read as follows:
Sec. 1.199-4 Costs allocable to domestic production gross receipts.
* * * * *
(d) * * *
(6) * * *
Example 1. * * *
(i) Facts. X, a United States corporation that is not a member
of an expanded affiliated group (EAG) (as defined in Sec. 1.199-7),
engages in activities that generate both DPGR and non-DPGR. All of
X's production activities that generate DPGR are within Standard
Industrial Classification (SIC) Industry Group AAA (SIC AAA). All of
X's production activities that generate non-DPGR are within SIC
Industry Group BBB (SIC BBB). X is able to specifically identify CGS
allocable to DPGR and to non-DPGR. X incurs $900 of research and
experimentation expenses (R&E) that are deductible under section
174, $300 of which are performed with respect to SIC AAA and $600 of
which are performed with respect to SIC BBB. None of the R&E is
legally mandated R&E as described in Sec. 1.861-17(a)(4) and none
of the R&E is included in CGS. X incurs section 162 selling expenses
that are not includible in CGS and are definitely related to all of
X's gross income. For 2010, the adjusted basis of X's assets is
$5,000, $4,000 of which generates gross income attributable to DPGR
and $1,000 of which generates gross income attributable to non-DPGR.
For 2010, X's taxable income is $1,380 based on the following
Federal income tax items: * * *
* * * * *
Example 2. * * *
(i) Facts. The facts are the same as in Example 1 except that X
owns stock in Y, a United States corporation, equal to 75% of the
total voting power of stock of Y and 80% of the total value of stock
in Y. X and Y are
[[Page 6]]
not members of an affiliated group as defined in section 1504(a).
Accordingly, the rules of Sec. 1.861-14T do not apply to X's and
Y's selling expenses, R&E, and charitable contributions. X and Y
are, however, members of an affiliated group for purposes of
allocating and apportioning interest expense (see Sec. 1.861-
11T(d)(6)) and are also members of an EAG. For 2010, the adjusted
basis of Y's assets is $45,000, $21,000 of which generates gross
income attributable to DPGR and $24,000 of which generates gross
income attributable to non-DPGR. All of Y's activities that generate
DPGR are within SIC Industry Group AAA (SIC AAA). All of Y's
activities that generate non-DPGR are within SIC Industry Group BBB
(SIC BBB). None of X's and Y's sales are to each other. Y is not
able to specifically identify CGS allocable to DPGR and non-DPGR. In
this case, because CGS is definitely related under the facts and
circumstances to all of Y's gross receipts, apportionment of CGS
between DPGR and non-DPGR based on gross receipts is appropriate.
For 2010, Y's taxable income is $1,910 based on the following
Federal income tax items: * * *
* * * * *
Sec. 1.199-6 [Corrected]
0
Par. 6. Section 1.199-6 is amended as follows:
0
1. The last sentence of paragraph (g), is revised.
0
2. The last sentence of Example 2 (i) in paragraph (m) is revised.
The revisions read as follows:
Sec. 1.199-6 Agricultural and horticultural cooperatives.
* * * * *
(g) Written notice to patrons. * * * The cooperative must report
the amount of the patron's section 199 deduction on Form 1099-PATR,
``Taxable Distributions Received From Cooperatives,'' issued to the
patron.
* * * * *
(m) * * *
Example 2. (i) * * * Cooperative X must report the amount of
Patron A's section 199 deduction on Form 1099-PATR, ``Taxable
Distributions Received From Cooperatives,'' issued to Patron A for
the calendar year 2008.
* * * * *
Sec. 1.199-7 [Corrected]
0
Par. 7. Section 1.199-7 is amended as follows:
0
1. Example 3 in paragraph (a)(4) is revised.
0
2. Example 10 in paragraph (e) is revised.
The revisions read as follows:
Sec. 1.199-7 Expanded affiliated groups.
(a) * * *
(4) * * *
Example 3. The facts are the same as in Example 2 except that
rather than reselling the machinery, B rents the machinery to
unrelated persons and B takes the gross receipts attributable to the
rental of the machinery into account under its methods of accounting
in 2007, 2008, and 2009. In addition, as of the close of business on
December 31, 2008, A and B cease to be members of the same EAG. With
respect to the machinery acquired from C and the unrelated persons,
B's gross receipts attributable to the rental of the machinery in
2007, 2008, and 2009 are non-DPGR because no member of the EAG MPGE
the machinery and because C does not qualify as an EAG partnership.
With respect to machinery acquired from A, B's gross receipts in
2007 and 2008 attributable to the rental of the machinery are DPGR
because at the time B takes into account the gross receipts derived
from the rental of the machinery under its methods of accounting, B
is a member of the same EAG as A and B is treated as conducting A's
previous MPGE activities. However, with respect to the rental
receipts in 2009, because A and B are not members of the same EAG in
2009, B's rental receipts are non-DPGR.
* * * * *
(e) * * *
Example 10. (i) Facts. Corporation P owns all of the stock of
Corporations S and T, and P, S, and T file a consolidated Federal
income tax return on a calendar year basis. In 2007, P MPGE QPP in
the United States at a cost of $1,000. On November 30, 2007, P sells
the QPP to S for $2,500. On February 28, 2008, P disposes of 60% of
the stock of S. On June 30, 2008, S sells the QPP to an unrelated
person for $3,000.
* * * * *
Sec. 1.199-8 [Corrected]
0
Par. 8. Section 1.199-8 is amended by revising paragraph (h) to read as
follows:
Sec. 1.199-8 Other rules.
* * * * *
(h) Disallowed losses or deductions. Except as provided by
publication in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(b) of this chapter), losses or deductions of a
taxpayer that otherwise would be taken into account in computing the
taxpayer's section 199 deduction are taken into account only if and to
the extent the deductions are not disallowed by section 465 or 469, or
any other provision of the Code. If only a portion of the taxpayer's
share of the losses or deductions is allowed for a taxable year, the
proportionate share of those allowable losses or deductions that are
allocated to the taxpayer's qualified production activities, determined
in a manner consistent with sections 465 and 469, and any other
applicable provision of the Code, is taken into account in computing
QPAI for purposes of the section 199 deduction for that taxable year.
To the extent that any of the disallowed losses or deductions are
allowed in a later year, the taxpayer takes into account a
proportionate share of those losses or deductions in computing it QPAI
for that later taxable year. Losses or deductions of the taxpayer that
are disallowed for taxable years beginning on or before December 31,
2004, are not taken into account in a later year for purposes of
computing the taxpayer's QPAI and the wage limitation of section
199(d)(1)(A)(iii) under Sec. 1.199-9 for that taxable year, regardless
of whether the losses or deductions are allowed for other purposes. For
taxpayers that are partners in partnerships, see Sec. 1.199-9(b)(2).
For taxpayers that are shareholders in S corporations, see Sec. 1.199-
9(c)(2).
* * * * *
Sec. 1.199-9 [Corrected]
0
Par. 9. Section 1.199-9(b)(6) is amended as follows:
0
1. By revising Example 1 paragraphs (i), (iii)(B)(1), and the seventh
sentence of (iii)(B)(2).
0
2. By revising Example 2 paragraphs (i), and (iii)(B)(1), and the table
following (iii)(B)(3).
0
3. Paragraph (h) is revised.
The revisions read as follows:
Sec. 1.199-9 Application of section 199 to pass-thru entities for
taxable years beginning on or before May 17, 2006, the enactment date
of the Tax Increase Prevention and Reconciliation Act of 2005.
* * * * *
(b) * * *
(6) * * *
Example 1. * * * (i) Partnership Federal income tax items. X and
Y, unrelated United States corporations, are each 50% partners in
PRS, a partnership that engages in production activities that
generate both DPGR and non-DPGR. X and Y share all items of income,
gain, loss, deduction, and credit 50% each. Both X and Y are engaged
in a trade or business. PRS is not able to specifically identify CGS
allocable to DPGR and non-DPGR. In this case, because CGS is
definitely related under the facts and circumstances to all of PRS's
gross income, apportionment of CGS between DPGR and non-DPGR based
on gross receipts is appropriate. For 2006, the adjusted basis of
PRS's business assets is $5,000, $4,000 of which generate gross
income attributable to DPGR and $1,000 of which generate gross
income attributable to non-DPGR. For 2006, PRS has the following
Federal income items: * * *
* * * * *
(iii) * * *
(B) * * * (1) For 2006, in addition to the activities of PRS, Y
engages in production activities that generate both DPGR and non-
DPGR. Y is able to specifically identify CGS allocable to DPGR and
to non-DPGR. For 2006, the adjusted basis of Y's non-PRS assets
attributable to its production activities that generate DPGR is
$8,000 and to other
[[Page 7]]
production activities that generate non-DPGR is $2,000. Y has no
other assets. Y has the following Federal income tax items relating
to its non-PRS activities: * * *
(2) * * * Y has $1,290 of gross income attributable to DPGR
($3,000 DPGR ($1,500 from PRS and $1,500 from non-PRS activities)--
$1,710 CGS ($810 from PRS and $900 from non-PRS activities)). * * *
* * * * *
Example 2. * * * (i) Partnership items of income, gain, loss,
deduction or credit. X and Y, unrelated United States corporations
each of which is engaged in a trade or business, are partners in
PRS, a partnership that engages in production activities that
generate both DPGR and non-DPGR. Neither X nor Y is a member of an
affiliated group. X and Y share all items of income, gain, loss,
deduction, and credit 50% each. All of PRS's domestic production
activities that generate DPGR are within Standard Industrial
Classification (SIC) Industry Group AAA (SIC AAA). All of PRS's
production activities that generate non-DPGR are within SIC Industry
Group BBB (SIC BBB). PRS is not able to specifically identify CGS
allocable to DPGR and to non-DPGR and, therefore, apportions CGS to
DPGR and non-DPGR based on its gross receipts. PRS incurs $900 of
research and experimentation expenses (R&E) that are deductible
under section 174, $300 of which are performed with respect to SIC
AAA and $600 of which are performed with respect to SIC BBB. None of
the R&E is legally mandated R&E as described in Sec. 1.861-17(a)(4)
and none is included in CGS. PRS incurs section 162 selling expenses
(that include W-2 wage expense) that are not includible in CGS and
are definitely related to all of PRS's gross income. For 2006, PRS
has the following Federal income tax items: * * *
* * * * *
(iii) * * *
(B) * * * (1) For 2006, in addition to the activities of PRS, Y
engages in domestic production activities that generate both DPGR and
non-DPGR. With respect to those non-PRS activities, Y is not able to
specifically identify CGS allocable to DPGR and to non-DPGR. In this
case, because CGS is definitely related under the facts and
circumstances to all of Y's non-PRS gross receipts, apportionment of
CGS between DPGR and non-DPGR based on Y's non-PRS gross receipts is
appropriate. For 2006, Y has the following non-PRS Federal income tax
items: * * *
* * * * *
(3) * * *
------------------------------------------------------------------------
------------------------------------------------------------------------
DPGR ($4,500 DPGR ($1,500 from PRS and $3,000 from $4,500
non-PRS activities))................................
CGS ($600 from sales of products by PRS and $1,500 (2,100)
from non-PRS activities)............................
Section 162 selling expenses (including W-2 wages) (480)
($420 from PRS + $540 from non-PRS activities) x
($4,500 DPGR/$9,000 total gross receipts)...........
Section 174 R&E-SIC AAA ($150 from PRS and $300 from (450)
non-PRS activities).................................
Section 174 R&E-SIC BBB ($300 from PRS + $450 from (188)
non-PRS activities) x ($1,500 DPGR/$6,000 total
gross receipts allocated to SIC BBB ($1,500 from PRS
and $4,500 from non-PRS activities))................
------------------
Y's QPAI........................................... 1,282
------------------------------------------------------------------------
* * * * *
(h) * * * Except as provided in paragraph (i) of this section
regarding qualifying in-kind partnerships and paragraph (j) of this
section regarding EAG partnerships, an owner of a pass-thru entity is
not treated as conducting the qualified production activities of the
pass-thru entity, and vice versa. This rule applies to all
partnerships, including partnerships that have elected out of
subchapter K under section 761(a). Accordingly, if a partnership MPGE
QPP within the United States, or produces a qualified film or produces
utilities in the United States, and distributes or leases, rents,
licenses, sells, exchanges, or otherwise disposes of such property to a
partner who then, without performing its own qualifying MPGE or other
production, leases, rents, licenses, sells, exchanges, or otherwise
disposes of such property, then the partner's gross receipts from this
latter lease, rental, license, sale, exchange, or other disposition are
treated as non-DPGR. In addition, if a partner MPGE QPP within the
United States, or produces a qualified film or produces utilities in
the United States, and contributes or leases, rents, licenses, sells,
exchanges, or otherwise disposes of such property to a partnership
which then, without performing its own qualifying MPGE or other
production, leases, rents, licenses, sells, exchanges, or otherwise
disposes of such property, then the partnership's gross receipts from
this latter disposition are treated as non-DPGR.
* * * * *
Guy R. Traynor,
Federal Register Liaison, Legal Processing Division, Associate Chief
Counsel (Procedure & Administration).
[FR Doc. E6-22019 Filed 12-29-06; 8:45 am]
BILLING CODE 4830-01-P
