IRS issues regulations to clarify Section 199 requirements

In September 2015, the IRS proposed regulations to clarify various aspects of the Section 199 deduction, including how to determine domestic production gross receipts (DPGR). In large part, the new regulations address issues related to manufactured products, oil-related activities and film production. But certain provisions also address issues related to construction.

For example, the proposed regulations clarify that a taxpayer’s construction activities must include more than the approval or authorization of payments for that taxpayer’s activities to be considered those typically performed by a general contractor. The proposed regs also revise the definition of substantial renovation to include requirements on how renovation costs must be capitalized.

At the same time, the IRS issued another set of temporary regulations on the allocation of Sec. 199 wages in short tax years or where the taxpayer acquires or disposes of a major business unit during a tax year. If either of these situations might pertain to you, ask your tax advisor about whether and how the regs would affect your capacity to claim the deduction.

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