Reference: LB&I-4-0112-001

Internal Revenue Code Section 199 allows a special additional deduction for income derived from any lease, rental, license, sale, exchange or other disposition or qualifying production property manufactured, produced, grown, or extracted by the taxpayer in whole or significant part within the U.S.  This was expended to include qualified films or electricity produced by the taxpayer in the U.S.

Contracted Services: The IRS has now stressed that under Regulation 1.199-e(f)(1), the party qualifying for the deduction is the one where the “qualifying activity occurs.”  Thus, if ABX Corporation contracted with Abe’s Machine Shop to manufacture a product, Abe’s would get the domestic production activities deduction because it was Abe’s where the manufacturing occurred… even though it was ABX Corp who sold the finished product to the public.