The IRS Large Business and International Division (LB&I) recently issued updated Industry Director Directive LB&I-04-1013-008 (the Updated Directive or Directive), which provides guidance to examiners for use in determining whether a taxpayer has the benefits and burdens of ownership under Federal income tax principles (B&B) of qualifying production property, qualified films, or utilities produced under a contract manufacturing arrangement for purposes of Reg. sec. 1.199-3(f)(1).
Like the previous version of the Directive issued in July 2013 (the July 2013 Directive), the Updated Directive permits the parties to a contract manufacturing arrangement to designate which party may claim the Section 199 domestic production activities deduction. The changes made by the Updated Directive should allow more taxpayers to streamline the examination of their Section 199 deductions.