Press Room: Article

October 05, 2010

Section 199 Domestic Production Deduction: Time for a Closer Look

In 2004, Congress introduced the Domestic Production Deduction (the DPD) to encourage U.S. manufacturing and certain other “production” activity.

At the time of enactment, there was a decidedly lackluster reaction to the new incentive: the new provisions were complex, the computations and reporting could be difficult and the tax benefit often appeared relatively small or non-existent. Flash forward to 2010; the interest in Sec. 199 has swung dramatically upward and for good reason. The DPD can produce both significant tax savings and a meaningful reduction in a company’s effective tax rate; however, it can also result in unexpected tax assessments, penalties and interest for those taxpayers who claim the benefits of Sec. 199 too liberally.

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