Source: https://www.bna.com/practical-considerations-applying-n8589934897/
Timestamp: 2017-06-26 03:39:06
Document Index: 636634862

Matched Legal Cases: ['§199', '§1', '§199', '§168', '§263', '§3', '§ 1', '§ 1', '§ 1', '§ 1', '§ 199', '§1']

Practical Considerations In Applying the Section 199 Domestic Production Deduction Provisions to Contract Manufacturing | Bloomberg BNA
Those faced with an evaluation of a B&B fact pattern should consider the nature and character of the transaction and the general common law requirements the courts and the IRS have applied. However, it is important to neither blindly apply a set of criteria that have emerged from very different contexts, e.g., sale-lease back transactions with back-end purchase options, or seek a degree of a priori quantitative weighting in applying the generally accepted factors. There is a temptation in seeing a list of factors to try to assign relative weight to them, whether pro-rata or otherwise, and then formulaically computing a result. The courts have time and time again resisted such a method in B&B determination contexts and we should as well in the §199 context. The temptation brings to mind a classic movie scene from Robin Williams' in Dead Poets Society:Understanding Poetry, by Dr. J. Evans Pritchard, Ph.D.: To fully understand poetry, we must first be fluent with its meter, rhyme and figures of speech, then ask two questions: One, how artfully has the objective of the poem been rendered and two, How important is that objective? Question 1 rates the poem's perfection; question 2 rates its importance. And once these questions have been answered, determining the poem's greatness becomes a relatively simple matter. If the poem's score for perfection is plotted on the horizontal of a graph and its importance is plotted on the vertical, then calculating the total area of the poem yields the measure of its greatness. A sonnet by Byron might score high on the vertical but only average on the horizontal. A Shakespearean sonnet, on the other hand, would score high both horizontally and vertically, yielding a massive total area, thereby revealing the poem to be truly great. As you proceed through the poetry in this book, practice this rating method. As your ability to evaluate poems in this matter grows, so will your enjoyment and understanding of poetry. As with Pritchard's rating of poems, a tool to weigh B&B factors without regard to the specific fact patterns should be ripped from our texts and our minds. That does not mean, however, there is no utility in deriving a common list of factors and trying to determine which ones the courts have looked at with greatest frequency in various commercial contexts as a starting point for analysis.
1 Regs. §1.199-3(f)(1). 2 Activities that include manufacturing, producing, growing, extracting, installing, developing, and improving, and creating QPP (qualified production property). §199(c)(4)(A)(i)(I),(II). QPP constitutes tangible personal property, computer software or sound recordings as defined by §168(f)(4). The preamble to the October 2005 Proposed Regulations rejects the suggestion that §263A be broadly applied to make the benefits and burdens determination since such might allow for two taxpayers to qualify as the producers of the same item. See, e.g., Suzy's Zoo v. Comr., 114 T.C. 1 (2000), aff'd, 273 F.3d 875 (9th Cir. 2001). 3 Rev. Proc. 2011-3, 2011-1 I.R.B. 111 §3.01(25). Specifically, the provision excludes from determination: "Section 199.—Income Attributable to Domestic Production Activities.—The determination under § 1.199-3(f)(1) as to who is the taxpayer that has the benefits and burdens of ownership under Federal income tax principles of any qualifying production property (as defined in § 1.199-3(j)(1)), qualified film (as defined in § 1.199-3(k)), or utilities (as defined in § 1.199-3(l)) during the period in which a qualifying activity under § 199 occurs." 4 Preamble to June 2006 Final Regulations. T.D. 9263. 5
See, e.g., Regs. §1.199-3(f)(4), Examples 1-3. 7
See, e.g., Swift Dodge v. Comr., 692 F.2d 651 (9th Cir. 1982); Grodt and McKay Realty, Inc. v. Comr., 77 T.C. 1221 (1981). 8
Torres, et al. v. Comr., 88 T.C. 702, 721 (1987). Request Bloomberg BNA Tax & Accounting now