The IRS provides mixed Section 199 guidance on US government contracts

Washington National Tax Services
In a recently released Technical Advice Memorandum (TAM 201314043), the IRS National Office determined that a taxpayer that meets the special rule for government contracts under Section 199(c)(4)(C) may be treated as deriving gross receipts from a lease, rental, license, sale, exchange, or other disposition (disposition) of property in cases in which the property is not delivered to the government.

The IRS also concluded that any of the taxpayer's gross receipts derived from the Federal government that were related to the transfer of intangible rights and data were allocable to non-qualified services and non-qualified property provided by the taxpayer and therefore were not domestic production gross receipts (DPGR).

Taxpayers that enter into contracts with the US government as well as taxpayers that enter into contracts that provide for the transfer of both qualifying property and intangible assets should consider the potential effects of this TAM.


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