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Attachment to IDD #3 on Domestic Production Deduction

Documentation Standards/IDR

I. General

  1. Provide the amount and make up of the prior period compensation expense deductions, individually; including general ledger account numbers and M-3’s where the expenses were posted.
  2. Was a functional analysis performed to determine if any of the prior period compensation expense deductions that are allocated and apportioned to non-I.R.C. §199 gross income could generate I.R.C. § 199 gross income after the enactment of I.R.C. §199?
  3. Describe, in detail, the methodology employed (if any) for capturing amounts treated as prior period compensation expense deductions for each specific expense.
  4. Explain and show how the prior period compensation expense deductions were traced to I.R.C. §199 gross income or non-I.R.C. §199 gross income.
  5. Explain what steps were taken to determine whether each employee’s labor and personal services did not generate I.R.C. §199 gross income?
  6. Provide a copy of all workpapers that support this allocation and apportionment.
  7. Has the methodology you employed changed from one year to the next?  If so, please explain why the methodology was not consistent from one year to the next.

II. The following applies to prior period compensation expense deductions related to employee plans where the amount of compensation is dependent upon the value of stock during the year of exercise, such as stock option plans, stock appreciation rights plans, and employee stock incentive plans, where compensation paid under the plan is claimed as a prior period compensation expense deduction that was allocated and/or apportioned in whole or in part to non-I.R.C. §199 gross income.

  1. Provide complete copies of all [INSERT TYPE OF PLAN] plans, agreements, and arrangements, whether current, former, formal, or informal, where the amount of compensation is dependent upon the value of stock during the year of exercise.
  2. Provide for each individual employee whose prior period expense deduction with respect to [INSERT TYPE OF PLAN] plan was allocated and apportioned, in whole or in part, to non-I.R.C. §199 gross income:

    a. Description/explanation of all rights under each plan
    b. Type of plan
    c. Date of grant
    d. Vesting date
    e. The share price on 12/31/2004
    f. The share price on date of exercise, and
    g. The amount of the deduction for prior period compensation expense that was allocated and/or apportioned to I.R.C. §199 gross income and non-I.R.C. §199 gross income
  3. Provide job descriptions and other documents that were used to document the activities of the employees to which the preceding document request applies.
  4. Provide job descriptions of the employee’s function, whether administrative, corporate officer, researcher, etc., and the activities performed by the employee in the taxable years beginning before January 1, 2005, and on or after January 1, 2005, the effective date of I.R.C. §199.

III. The following applies to prior period compensation expense deductions related to employee plans for current employees (other than those described in section II.), such as deferred compensation and bonus plans, where compensation paid under the plan is claimed as a prior period compensation expense deduction that was allocated and/or apportioned in whole or in part to non-I.R.C. §199 gross income:

  1. Provide complete copies of all [INSERT TYPE OF PLAN] plans, agreements, and arrangements, whether current, former, formal, or informal, involving [INSERT TYPE OF PRIOR PERIOD COMPENSATION] expenses.
  2. Provide a computation of the amount of the claimed prior period compensation expense deduction related to the plan.
  3. Please identify the period to which the prior period compensation expense deduction relates for each employee included in the [TYPE OF PLAN].
  4. Please provide job descriptions and other documents that were used to document the activities of the employee to which points #1, #2, and #3 apply.  Provide a description of the employee’s function, such as administrative, corporate officer, researcher, etc., and the activities performed by such employee in the taxable years beginning before January 1, 2005 and on or after January 1, 2005, the effective date of I.R.C. §199.

IV. The following applies to prior period compensation expense deductions related to employee plans for retired employees, such as pension plans, retiree medical plans, and supplemental retirement plans, where compensation paid under the plan is claimed as a prior period compensation expense deduction that was allocated and/or apportioned in whole or in part to non-I.R.C. §199 gross income.

  1. Provide complete copies of all [INSERT TYPE OF PLAN] plans agreements, and arrangements, whether current, former, formal, or informal, involving [INSERT TYPE OF PRIOR PERIOD COMPENSATION] expenses.
  2. Provide the following information for each employee who received compensation in the current year with respect to [INSERT TYPE OF PLAN] plan;

    a. Period of employment.
    b. Retirement date.
    c. Job descriptions and other documents that were used to document the activities of each employee. 
    d. A description of the employee’s function, whether administrative corporate officer, researcher, etc., and the activities performed by the former employee in the taxable years beginning before January 1, 2005 and on or after January 1, 2005, the effective date of I.R.C. §199.
    e. The amount of the claimed prior period compensation expense amounts received by the employee for each [INSERT TYPE OF PLAN] plan.
  3. Please provide all documents, including actuarial statements, etc., that were used to allocate and apportion the prior period compensation expense deductions for each [INSERT TYPE OF PLAN] plan to I.R.C. §199 gross income and to non-I.R.C. §199 gross income.
Page Last Reviewed or Updated: 29-Nov-2013