IRS seeks to reduce uncertainty in meeting Section 199 ‘benefits and burdens’ test

Washington National Tax Services
The IRS Large Business and International Division (LB&I) recently issued Industry Director Directive LB&I-04-0713-006 to examiners for use in determining whether a taxpayer has the benefits and burdens of ownership (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).

The Directive, which supersedes a previous Section 199 industry director directive, is intended to further simplify and streamline what has been one of the most difficult and controversial issues under Section 199 for taxpayers and the IRS.  The Directive is effective for all Section 199 open tax years. Deadlines for submitting required statements are discussed below.

Under the Directive, an examiner should not challenge a taxpayer that meets the requirements of the Directive. Taxpayers that do not, or cannot, meet those requirements are subject to regular audit procedures.


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