§ 199. Income attributable to domestic production activities
(a)
Allowance of deduction
(2)
Phasein
In the case of any taxable year beginning after 2004 and before 2010, paragraph (1) shall be applied by substituting for the percentage contained therein the transition percentage determined under the following table:
For taxable years
The transition
beginning in:
percentage is:
2005 or 2006
3
2007, 2008, or 2009
6.
(b)
Deduction limited to wages paid
(1)
In general
The amount of the deduction allowable under subsection (a) for any taxable year shall not exceed 50 percent of the W–2 wages of the taxpayer for the taxable year.
(2)
W–2 wages
For purposes of this section—
(A)
In general
The term “W–2 wages” means, with respect to any person for any taxable year of such person, the sum of the amounts described in paragraphs (3) and (8) of section
6051
(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year.
(B)
Limitation to wages attributable to domestic production
Such term shall not include any amount which is not properly allocable to domestic production gross receipts for purposes of subsection (c)(1).
(c)
Qualified production activities income
For purposes of this section—
(1)
In general
The term “qualified production activities income” for any taxable year means an amount equal to the excess (if any) of—
(2)
Allocation method
The Secretary shall prescribe rules for the proper allocation of items described in paragraph (1) for purposes of determining qualified production activities income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic production gross receipts.
(3)
Special rules for determining costs
(A)
In general
For purposes of determining costs under clause (i) of paragraph (1)(B), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic production gross receipts.
(B)
Exports for further manufacture
In the case of any property described in subparagraph (A) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under subparagraph (A) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.
(4)
Domestic production gross receipts
(A)
In general
The term “domestic production gross receipts” means the gross receipts of the taxpayer which are derived from—
(i)
any lease, rental, license, sale, exchange, or other disposition of—
(ii)
in the case of a taxpayer engaged in the active conduct of a construction trade or business, construction of real property performed in the United States by the taxpayer in the ordinary course of such trade or business, or
(iii)
in the case of a taxpayer engaged in the active conduct of an engineering or architectural services trade or business, engineering or architectural services performed in the United States by the taxpayer in the ordinary course of such trade or business with respect to the construction of real property in the United States.
(C)
Special rule for certain Government contracts
Gross receipts derived from the manufacture or production of any property described in subparagraph (A)(i)(I) shall be treated as meeting the requirements of subparagraph (A)(i) if—
(D)
Partnerships owned by expanded affiliated groups
For purposes of this paragraph, if all of the interests in the capital and profits of a partnership are owned by members of a single expanded affiliated group at all times during the taxable year of such partnership, the partnership and all members of such group shall be treated as a single taxpayer during such period.
(6)
Qualified film
The term “qualified film” means any property described in section
168
(f)(3) if not less than 50 percent of the total compensation relating to the production of such property is compensation for services performed in the United States by actors, production personnel, directors, and producers. Such term does not include property with respect to which records are required to be maintained under section
2257 of title
18, United States Code. A qualified film shall include any copyrights, trademarks, or other intangibles with respect to such film. The methods and means of distributing a qualified film shall not affect the availability of the deduction under this section.
(7)
Related persons
(A)
In general
The term “domestic production gross receipts” shall not include any gross receipts of the taxpayer derived from property leased, licensed, or rented by the taxpayer for use by any related person.
(B)
Related person
For purposes of subparagraph (A), a person shall be treated as related to another person if such persons are treated as a single employer under subsection (a) or (b) of section
52 or subsection (m) or (o) of section
414, except that determinations under subsections (a) and (b) of section
52 shall be made without regard to section
1563
(b).
(d)
Definitions and special rules
(1)
Application of section to pass-thru entities
(A)
Partnerships and S corporations
In the case of a partnership or S corporation—
(ii)
each partner or shareholder shall take into account such person’s allocable share of each item described in subparagraph (A) or (B) of subsection (c)(1) (determined without regard to whether the items described in such subparagraph (A) exceed the items described in such subparagraph (B)),
(iii)
each partner or shareholder shall be treated for purposes of subsection (b) as having W-2 wages for the taxable year in an amount equal to such person’s allocable share of the W-2 wages of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary), and
(iv)
in the case of each partner of a partnership, or shareholder of an S corporation, who owns (directly or indirectly) at least 20 percent of the capital interests in such partnership or of the stock of such S corporation—
(B)
Trusts and estates
In the case of a trust or estate—
(2)
Application to individuals
In the case of an individual, subsections (a)(1)(B) and (d)(9)(A)(iii) shall be applied by substituting “adjusted gross income” for “taxable income”. For purposes of the preceding sentence, adjusted gross income shall be determined—
(3)
Agricultural and horticultural cooperatives
(A)
Deduction allowed to patrons
Any person who receives a qualified payment from a specified agricultural or horticultural cooperative shall be allowed for the taxable year in which such payment is received a deduction under subsection (a) equal to the portion of the deduction allowed under subsection (a) to such cooperative which is—
(B)
Cooperative denied deduction for portion of qualified payments
The taxable income of a specified agricultural or horticultural cooperative shall not be reduced under section
1382 by reason of that portion of any qualified payment as does not exceed the deduction allowable under subparagraph (A) with respect to such payment.
(C)
Taxable income of cooperatives determined without regard to certain deductions
For purposes of this section, the taxable income of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under subsection (b) or (c) of section
1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).
(D)
Special rule for marketing cooperatives
For purposes of this section, a specified agricultural or horticultural cooperative described in subparagraph (F)(ii) shall be treated as having manufactured, produced, grown, or extracted in whole or significant part any qualifying production property marketed by the organization which its patrons have so manufactured, produced, grown, or extracted.
(E)
Qualified payment
For purposes of this paragraph, the term “qualified payment” means, with respect to any person, any amount which—
(F)
Specified agricultural or horticultural cooperative
For purposes of this paragraph, the term “specified agricultural or horticultural cooperative” means an organization to which part I of subchapter T applies which is engaged—
(4)
Special rule for affiliated groups
(A)
In general
All members of an expanded affiliated group shall be treated as a single corporation for purposes of this section.
(5)
Trade or business requirement
This section shall be applied by only taking into account items which are attributable to the actual conduct of a trade or business.
(6)
Coordination with minimum tax
For purposes of determining alternative minimum taxable income under section
55—
(7)
Unrelated business taxable income
For purposes of determining the tax imposed by section
511, subsection (a)(1)(B) shall be applied by substituting “unrelated business taxable income” for “taxable income”.
(8)
Treatment of activities in Puerto Rico
(A)
In general
In the case of any taxpayer with gross receipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section
1 or
11 for such taxable year, then for purposes of determining the domestic production gross receipts of such taxpayer for such taxable year under subsection (c)(4), the term “United States” shall include the Commonwealth of Puerto Rico.
(B)
Special rule for applying wage limitation
In the case of any taxpayer described in subparagraph (A), for purposes of applying the limitation under subsection (b) for any taxable year, the determination of W–2 wages of such taxpayer shall be made without regard to any exclusion under section
3401
(a)(8) for remuneration paid for services performed in Puerto Rico.
(9)
Special rule for taxpayers with oil related qualified production activities income
(A)
In general
If a taxpayer has oil related qualified production activities income for any taxable year beginning after 2009, the amount otherwise allowable as a deduction under subsection (a) shall be reduced by 3 percent of the least of—
(B)
Oil related qualified production activities income
For purposes of this paragraph, the term “oil related qualified production activities income” means for any taxable year the qualified production activities income which is attributable to the production, refining, processing, transportation, or distribution of oil, gas, or any primary product thereof during such taxable year.