I 
115TH CONGRESS 
1ST SESSION H. R. 1296 
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 1, 2017 
Mr. TIBERI (for himself, Mr. NEAL, Mr. RENACCI, Mr. LARSON of Con-
necticut, Mr. PAULSEN, Mr. KIND, and Mrs. BEATTY) introduced the fol-
lowing 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, 
VerDate Sep 11 2014 
01:40 Mar 04, 2017
Jkt 069200
PO 00000
Frm 00001
Fmt 6652
Sfmt 6201
E:\BILLS\H1296.IH
H1296
SSpencer on DSK4SPTVN1PROD with BILLS
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)— 
VerDate Sep 11 2014 
01:40 Mar 04, 2017
Jkt 069200
PO 00000
Frm 00002
Fmt 6652
Sfmt 6201
E:\BILLS\H1296.IH
H1296
SSpencer on DSK4SPTVN1PROD with BILLS
‘‘(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; 
VerDate Sep 11 2014 
01:40 Mar 04, 2017
Jkt 069200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H1296.IH
H1296
SSpencer on DSK4SPTVN1PROD with BILLS
‘‘(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, 
VerDate Sep 11 2014 
01:40 Mar 04, 2017
Jkt 069200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H1296.IH
H1296
SSpencer on DSK4SPTVN1PROD with BILLS
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 
VerDate Sep 11 2014 
01:40 Mar 04, 2017
Jkt 069200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H1296.IH
H1296
SSpencer on DSK4SPTVN1PROD with BILLS
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 
VerDate Sep 11 2014 
01:40 Mar 04, 2017
Jkt 069200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6201
E:\BILLS\H1296.IH
H1296
SSpencer on DSK4SPTVN1PROD with BILLS
years beginning on or before the date of the enact-
ment of this Act and can demonstrate, by providing 
copies of timely filed tax returns (including amended 
returns) or otherwise, that only one person claimed 
the deduction under section 199 of such Code in 
such taxable years with respect to the property de-
scribed in the agreement, then the amendments 
made by this section shall apply to such taxable 
years of such persons. 
(c) NO INFERENCE.—The amendments made by this 
section are intended as safe harbors and shall not be con-
strued as adversely affecting the eligibility for a deduction 
under section 199 of the Internal Revenue Code of 1986 
of any person who contracts with another person to manu-
facture, produce, grow or extract property described in 
subsection (c)(5) or (c)(6) of such section. 
Æ 
VerDate Sep 11 2014 
01:40 Mar 04, 2017
Jkt 069200
PO 00000
Frm 00008
Fmt 6652
Sfmt 6301
E:\BILLS\H1296.IH
H1296
SSpencer on DSK4SPTVN1PROD with BILLS