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Domestic Production Deduction

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The § 199 Domestic Production Activity Deduction, also referred to as the domestic manufacturing deduction or "DPAD," allows businesses with qualified production activities to take a tax deduction from net income. Businesses engaged in domestic production activities, including mining, oil extraction, farming, construction, architecture, engineering, and the production of software and film can take advantage of this tax break.

The deduction equals a percentage of the net income from eligible activities: 3% in 2005–2006; 6 percent for 2007–2009; and 9 percent after 2009. However, the Tax Cut and Jobs Act of 2017 eliminates DPAD as of the 2018 tax year.  With the forthcoming phase-out of DPAD, taxpayers should consider reviewing prior year claims to determine if any retroactive benefits may be available.

The A&M Advantage

Alvarez & Marsal can help your company ensure identification of all eligible activities as well as the most accurate calculation of the deserved deduction. A&M’s consultants have experience across a variety of industries in order to identify and ensure specific compliance requirements. Requirements typically include:

  • Documentation for qualifying activities and income.
  • Proper allocation method for nonqualified income and embedded services.
  • Consistent allocation method for §861 apportionment of deductions.
  • Application of the wage and income limitations.
  • Calculations in IRS-ready format.