Guidance Issued On New US Manufacturing Tax Deduction

by Mike Godfrey, Tax-News.com, Washington

21 January 2005

The Treasury Department and IRS have issued guidance on the newly enacted deduction relating to domestic production activities, introduced as part of the American Jobs Creation Act (AJCA).

The deduction generally equals 3% of income from domestic production activities for 2005, rising to 9% by 2010.

The activities eligible for the deduction include the manufacture of personal property such as clothing, goods, and food, in addition to software development, film and music production, electricity generation, natural gas production, water supply, construction, engineering and architectural services.

The domestic production activities deduction provides a tax saving on profits from production activities in the United States. It is based on a portion of the taxpayer's profits and increases proportionally as those profits increase.

"This provision has widespread impact across our complex economy," commented IRS Commissioner Mark W. Everson.

"The guidance strikes a balance. It provides clear practical guidelines that are administrable both from the taxpayers' and the IRS' point of view,” he added.

The Treasury Department has requested comments on the rules in the notice, and on any additional guidance that should be provided in the proposed regulations.

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