LB&I Directive on Amended Return/Claim for Refund Relating to Internal Revenue Code Section 199 (IRC § 199)

November 21, 2018

Control Number: LB&I-04-1118-016
Affected IRM: 4.51.2

Memorandum for: All Large Business and International Division Employees

FROM: Douglas W. O'Donnell /s/ Douglas W. O’Donnell, Commissioner, Large Business and International Division
SUBJECT: LB&I Directive on Amended Return/Claim for Refund Relating to Internal Revenue Code Section 199 (IRC § 199)

Introduction

Large Business and International (LB&I) announced a campaign to evaluate claims filed for additional Domestic Production Activity Deduction (DPAD) under IRC § 199 to address compliance risk associated with the repeal of the DPAD.

This Directive provides LB&I examiners with guidance when a taxpayer files an amended return or claim for refund relating to IRC § 199, DPAD. This Directive only applies to LB&I taxpayers and is intended to provide a uniform approach to evaluating the claims and ensure the most efficient use of LB&I resources. This Directive is not an official pronouncement of the law and cannot be used, cited, or relied upon as such.

Applicable Law

Public Law 115-97 (as amended by the Consolidated Appropriations Act, 2018, Public Law 115-141, § 101(c), 132 Stat. 348, 1151, 1156) repealed the DPAD for taxable years beginning after December 31, 2017. Taxpayers should not claim the DPAD for 2018 or later years, unless any of the following applies:

  1. their taxable year began before January 1, 2018;
  2. the DPAD results from being a shareholder or partner in an S Corporation or partnership with a taxable year that began before January 1, 2018;
  3. the DPAD results from being a beneficiary of an estate or trust with a taxable year that began before January 1, 2018; or
  4. the DPAD results from being a patron of an agricultural or horticultural cooperative with a taxable year that began before January 1, 2018.

Prior to its repeal, IRC § 199 generally provided for a tax deduction equal to 9% of the lesser of the Qualified Production Activities Income (QPAI) of the taxpayer for the taxable year, or the taxpayer’s taxable income for the taxable year. Additionally, the amount of the deduction allowable for any taxable year was limited to 50% of the W-2 wages of the taxpayer for the taxable year properly allocable in the determination of QPAI.

Handling Amended Returns/Refund Claims Under IRC § 199

As announced in the IRC § 199 – Claims Risk Review Campaign, LB&I established a process to risk assess IRC § 199 amended returns and claims for refund for taxable years prior to the repeal of IRC § 199. Claims for refund filed with the Ogden Campus or with an examiner will be risk assessed. Materiality will be considered during the risk review process. 

An examiner who receives an informal claim for refund, amended return not filed with the campus, or a Joint Committee case under IRC § 199 is required to submit an inquiry to the Corporate Income and Losses (CIL) Practice Network (PN) via the CIL PN SharePoint site. A member(s) of the risk review team (comprised of CIL PN employees and field examiners) will assist in risk assessing the amended return or claim for refund.

Examiners will continue to follow the rules and procedures in Publication 5125, LB&I Examination Process, including the expectations with respect to claims for refund. Examiners should also follow IRM 4.46.3.6 with respect to claims and ensure that the claim is valid and meets the requirements of Treasury Regulation § 301.6402-2. The CIL PN is available to assist with this determination.

When disallowing a claim, in part or in full, examiners will refer to the procedures in IRM 4.10.8.9 and the LB&I Reference Guide for Claims. The Written Acknowledgment of the Facts process in IRM 4.46.4.9 also must be followed.

IRC § 6676 - Penalty Issues

IRC § 6676, Erroneous Claim for Refund or Credit, should be considered when appropriate, based on the facts and circumstances of the issue. An examiner may obtain assistance from counsel in determining whether referrals to the Office of Professional Responsibility (OPR) are appropriate. IRM 20.1.6.12.3 Referral to OPR

Contact

Questions concerning this Directive should be directed to the CIL PN.