PRODUCTION ACTIVITIES DEDUCTION OF A CONSOLIDATED GROUP MUST BE ALLOCATED TO

Production activities deduction of a consolidated

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PRODUCTION ACTIVITIES DEDUCTION OF A CONSOLIDATED GROUP MUST BE ALLOCATED TO THE GROUP'S MEMBERS IN PROPORTION TO EACH MEMBER'S QUALIFIED PRODUCTION ACTIVITIES INCOME (IF ANY) REGARDLESS OF WHETHER THE MEMBER HAS SEPARATE TAXABLE INCOME (LOSS) FOR THE TAX YEAR AND WHETHER THE MEMBER HAS W-2 WAGES FOR THE TAX YEAR IN THE CASE OF PARTNERSHIPS, S CORPORATIONS, TRUSTS AND ESTATES, SPECIAL RULES APPLY FOR HANDLING THE DOMESTIC PRODUCTION ACTIVITIES DEDUCTION. BECAUSE THE DEDUCTION IS DETERMINED AT THE OWNER LEVEL, EACH OWNER (IE. PARTNER OR SHAREHOLDER) OR BENEFICIARY MUST MAKE THE COMPUTATION SEPARATELY.
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CONSEQUENTLY, THE ENTITY ALLOCATES TO EACH OWNER OR BENEFICIARY THEIR SHARE OF QUALIFIED PRODUCTION ACTIVITIES INCOME. THE QUALIFIED PRODUCTION ACTIVITIES INCOME ALLOCATED IS THEN COMBINED WITH THE PRODUCTION ACTIVITIES THE OWNER OR BENEFICIARY MAY HAVE FROM OTHER SOURCES. IN WORKING WITH THE WAGE LIMITATION, THE LIMITATION IS FIRST APPLIED AT THE ENTITY LEVEL. THEN THE OWNER OR BENEFICIARY WILL BE TREATED AS HAVING BEEN ALLOCATED THE LESSER OF THE PERSON'S ACTUAL SHARE OF THE WAGES OR TWO TIMES THREE PERCENT (3%) OF THEIR SHARE OF THE QUALIFIED PRODUCTION ACTIVITIES INCOME. (THIS IS TO PREVENT THE OWNER OR BENEFICIARY FROM TAKING ADVANTAGE OF THE ENTITY'S WAGES TO COVER QUALIFIED PRODUCTION ACTIVITIES INCOME FROM OTHER SOURCES. THE OWNER OR BENEFICIARY MAY ADD ANY WAGES SEPARATELY PAID TO THE WAGES ALLOCATED FROM THE ENTITY. (GUARANTEED PAYMENTS (DISCUSSED IN CHAPTER 10 – LECTURE 3 LECTURE NOTES) ARE NOT CONSIDERED TO BE W-2 WAGES FOR PURPOSES OF THE DOMESTIC
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PRODUCTION ACTIVITIES DEDUCTION). WHEN THE ENTITY USES A DIFFERENT TAX YEAR THAN THE OWNER OR BENEFICIARY, THE ALLOCATION OF THE DOMESTIC PRODUCTION ACTIVITIES DEDUCTION FACTORS MAY BE DELAYED THE DOMESTIC PRODUCTION ACTIVITIES DEDUCTION IS ALLOWED FOR PURPOSES OF THE ALTERNATIVE MINIMUM TAX EXCEPT THAT THE DOMESTIC PRODUCTION ACTIVITIES DEDUCTION IS EQUAL TO THREE PERCENT (3%) (FOR 2005 AND 2006) OF THE SMALLER OF (1) QUALIFIED PRODUCTION ACTIVITIES INCOME OR (2) ALTERNATIVE MINIMUM TAXABLE INCOME (WITHOUT CONSIDERING THE DOMESTIC PRODUCTION ACTIVITIES DEDUCTION) FOR THE TAX YEAR. IN THE CASE OF AN INDIVIDUAL, MODIFIED ADJUSTED GROSS INCOME (WITHOUT CONSIDERING THE DOMESTIC PRODUCTION ACTIVITIES DEDUCTION) IS SUBSTITUTED FOR ALTERNATIVE MINIMUM TAXABLE INCOME NOTE TO STUDENTS :
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DOMESTIC PRODUCTION ACTIVITIES DEDUCTION WILL NOT BE TESTED ON EXAMINATIONS
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  • Spring '11
  • williams
  • Taxation in the United States

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