TaxNewsFlash-Cooperatives

October 12, 2009
No. 2009-09

IRS Advice on Calculating Qualified Production Activity Income Under Section 199

The IRS Office of the Chief Counsel publicly released a Chief Counsel Advice Memorandum (AM2009-009, dated September 1, 2009, with a release date of September 18, 2009) concluding that:

A taxpayer’s qualified production activities income (QPAI) under section 199(c)(1) must be reduced by the amount of the extraterritorial income (ETI) exclusion or by the amount of gross income that is excluded under section 101(d) of the American Jobs Creation Act of 2004 under both the proposed and final regulations issued under section 199.

The section 199 deduction must be taken into account for purposes of determining the taxpayer's ETI exclusion or the exclusion under section 101(d) of the 2004 Act, with the effect that the section 199 deduction on the exclusions will depend on the computation method—including the choice of full costing or marginal costing rules—used to determine the exclusions.

The IRS memorandum concluded that taxpayers may use “any reasonable method” for making the interrelated ETI exclusion / section 199 computations, and that the iterative method and the simultaneous equations method “are presumed to be reasonable methods for making such interrelated computations.”

For an electronic version of the IRS Chief Counsel Advice Memorandum: AM2009-009

For more information, contact KPMG’s National Director of Cooperative Tax Services:

David Antoni, in Philadelphia, (267) 256-1627, dantoni@kpmg.com

Or Associate National Director of KPMG’s Cooperative Tax Services

Brett Huston, in Sacramento, 916 554 1654, bhuston@kpmg.com

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