I 
114TH CONGRESS 
2D SESSION 
H. R. 4770 
To amend the Internal Revenue Code of 1986 to provide appropriate rules 
for the application of the deduction for income attributable to domestic 
production activities with respect to certain contract manufacturing or 
production arrangements. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 16, 2016 
Mr. TIBERI (for himself, Mr. NEAL, Mr. STIVERS, and Mrs. BEATTY) intro-
duced the following bill; which was referred to the Committee on Ways 
and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
appropriate rules for the application of the deduction 
for income attributable to domestic production activities 
with respect to certain contract manufacturing or pro-
duction arrangements. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. APPLICATION OF DEDUCTION FOR INCOME AT-
TRIBUTABLE TO DOMESTIC PRODUCTION AC-
TIVITIES TO CERTAIN CONTRACT MANUFAC-
TURING OR PRODUCTION ARRANGEMENTS. 
(a) IN GENERAL.—Section 199(d) of the Internal 
Revenue Code of 1986 is amended— 
(1) by inserting ‘‘the same qualified production 
activities income derived from’’ before ‘‘any activity’’ 
in paragraph (10), 
(2) by redesignating paragraph (10) (as amend-
ed by paragraph (1)) as paragraph (11), and 
(3) by inserting after paragraph (9) the fol-
lowing new paragraph: 
‘‘(10) CONTRACT MANUFACTURING OR PRODUC-
TION ARRANGEMENTS.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), in the case of a contract 
manufacturing 
or 
production 
arrangement 
under which any person makes a substantial 
contribution through the activities of its em-
ployees within the United States to the manu-
facture, production, growth, or extraction of 
qualifying production property, taking into ac-
count the factors set forth in subparagraph 
(D)— 
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‘‘(i) such person shall be treated as 
engaging in the manufacturing, produc-
tion, growth, or extraction of such quali-
fying production property, and 
‘‘(ii) the domestic production gross re-
ceipts of such person shall include the 
gross receipts of such person received 
under such arrangement for such activities. 
‘‘(B) TREATMENT OF CERTAIN WRITTEN 
AGREEMENTS.—In the case of a contract manu-
facturing or production arrangement, if all par-
ties to such arrangement agree in writing that 
only one such person shall be eligible for the de-
duction under this section, such person shall be 
treated as performing the activities described in 
subclauses 
(I) 
and 
(II) 
of 
subsection 
(c)(4)(A)(i) under such arrangement and no 
other person shall be treated for purposes of 
this section as performing such activities. 
‘‘(C) CONTRACT MANUFACTURING OR PRO-
DUCTION ARRANGEMENT.—For purposes of this 
paragraph, the term ‘contract manufacturing or 
production arrangement’ means any arrange-
ment under which— 
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‘‘(i) a person contracts with one or 
more unrelated persons for the manufac-
ture, production, growth or extraction of 
an item of qualifying production property 
or a qualified film, and 
‘‘(ii) in the case of qualifying produc-
tion property, such item of qualifying pro-
duction property is manufactured, pro-
duced, grown or extracted in whole or sig-
nificant part within the United States pur-
suant to subsection (c)(4)(A)(i)(I). 
‘‘(D) FACTORS
FOR
DETERMINING
SUB-
STANTIAL CONTRIBUTION.—The Secretary shall 
prescribe regulations setting forth activities to 
be taken into account in determining whether a 
person 
makes 
a 
substantial 
contribution 
through the activities of its employees within 
the United States to the manufacture, produc-
tion, growth or extraction of qualifying produc-
tion property for purposes of subparagraph (A). 
Such factors shall include— 
‘‘(i) oversight and direction of the ac-
tivities or process pursuant to which the 
property is manufactured, produced, grown 
or extracted; 
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‘‘(ii) physical transformation of per-
sonal property, or assembly or conversion 
of component parts into qualifying produc-
tion property, that does not by itself con-
stitute manufacturing, production, growth 
or 
extraction 
pursuant 
to 
subsection 
(c)(4)(A)(i)(I); 
‘‘(iii) material selection, vendor selec-
tion, or ownership and control of the raw 
materials, 
work-in-process 
or 
finished 
goods; 
‘‘(iv) management of risk of loss, cost 
reduction or efficiency initiatives associated 
with the manufacturing process, demand 
planning, production scheduling, hedging 
raw material costs and other manufac-
turing costs or capacities; 
‘‘(v) control of manufacturing related 
logistics; 
‘‘(vi) sample testing, establishment of 
quality control standards and other quality 
control activities; 
‘‘(vii) developing, or directing the use 
or development of, product design and de-
sign specifications, as well as trade secrets, 
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technology, and other intellectual property 
for the purpose of manufacturing, pro-
ducing, growing or extracting the quali-
fying production property; and 
‘‘(viii) such other activities as shall be 
determined by the Secretary. 
‘‘(E) SAFE
HARBOR
FOR
DETERMINING 
SUBSTANTIAL CONTRIBUTION.— 
‘‘(i) IN
GENERAL.—A person which 
has economic risk of loss with respect to 
greater than 50 percent of the direct mate-
rial costs necessary to the manufacture, 
production, growth, or extraction of the 
qualifying production in whole or in signifi-
cant part within the United States shall be 
deemed for purposes of subparagraph (A) 
to make a substantial contribution through 
the activities of its employees within the 
United States to the manufacture, produc-
tion, growth, or extraction of such quali-
fying production property. 
‘‘(ii) ECONOMIC RISK OF LOSS.—For 
purposes of this subparagraph, a person 
has economic risk of loss if such person 
bears the ultimate economic responsibility 
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for the direct material cost. The following 
factors shall not affect the determination 
of economic risk of loss: 
‘‘(I) Contractual requirements to 
insure the direct materials. 
‘‘(II) Contractual liability for 
breach of performance. 
‘‘(iii) DIRECT MATERIAL COST.—For 
purposes of this subparagraph, the term 
‘direct material cost’ includes the cost of 
materials that become an integral part of 
qualifying production property and mate-
rials that are consumed in the ordinary 
course of production and that can be iden-
tified or associated with particular units or 
groups of units of property produced.’’. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after the date of the enactment of this Act. 
(2) ELECTION
FOR
RETROACTIVE
APPLICA-
TION.—If all of the persons entering into a written 
agreement described in section 199(d)(10)(B) of the 
Internal Revenue Code of 1986 (as amended by this 
Act) elect to have this paragraph apply to taxable 
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