§199 Domestic Production Deduction

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The American Jobs Creation Act of 2004 mandated the expiration of export tax benefits under the ETI regime, and it replaced ETI with IRC §199 – the Domestic Production Activities Deduction. The experience and technology employed by our specialists to support more than $100 million in ETI tax benefits enables us to be at the forefront of §199 services for clients.

§199 allows taxpayers to receive a deduction based on qualified production activities income (QPAI) resulting from domestic production - assuming QPAI is less than the taxpayer’s taxable income. QPAI is calculated as Domestic Production Gross Receipts minus expense. In the initial years, 2005 and 2006, the deduction was 3%, moved to 6% in 2007 and 9% for taxable years beginning after 2009. As it is fully phased in at 9% for tax year 2010 and beyond, the benefit is approximately equivalent to a 3 percentage point reduction in the tax rate on QPAI.

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