manufacturers_deduction - TAX 5015 More on the relatively...

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TAX 5015 More on the relatively “new” domestic production activities deduction (DPAD) I. The qualified domestic production activities deduction (DPAD) A. Created by the American Jobs Creation Act of 2004, the DPAD replaces a number of export subsidies that were deemed by the World Trade Organization to be “illegal export subsidies”. 1. First it was the use of foreign sales corporations (FSC) 2. Then it was the extraterritorial income (ETI) exclusion – the ETI is currently being phased out over 2004-2006) B. Certain domestic manufacturers can claim a deduction equal to 9% of qualified production activities income (QPAI). It is phased in as follows – 3% in 2005 & 2006, 6% in 2007 & 2008, and 9% thereafter. C. Some oddities about the DPAD 1. It does not require exporting or any activity outside the United States (it is no longer an international tax issue). 2. It provides benefits to more businesses than just those considered manufacturers. 3. It is a deduction based on net income from certain activities, therefore it does not require an additional cash outflow (its effect is similar to a tax rate reduction or tax credit). Note: It appears that it is becoming a very complex calculation, with cumbersome recordkeeping requirements and with many unanswered questions. D. The deduction is available to individuals, partnerships, S corporations, C corporations, estates and trusts. For pass-through entities the deduction flows through to the individual owners (partners and shareholders) as a separately stated item. II. Components of the deduction A. The qualified production activities deduction (DPAD) = 3-6-9% x the lesser of: 1. qualified production activities income (QPAI) 2. taxable income (without regard to the DPAD, but adjusted for any NOL carryforward)
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This note was uploaded on 08/29/2010 for the course TAX 5015 taught by Professor Kelliher,c during the Summer '08 term at University of Central Florida.

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manufacturers_deduction - TAX 5015 More on the relatively...

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