IRS examines whether manufacture of packaging qualifies for section 199 deduction

November 2012


In a recently released legal memorandum (CCA 201246030), the IRS Office of Chief Counsel concluded that the exclusion from the section 199 domestic manufacturing deduction for repackaging and labelling activities does not apply to a taxpayer that repackages and labels pills that it did not manufacture because the taxpayer engaged in other eligible manufacturing, production, growing, or extraction (MPGE) activities by virtue of its manufacture of the blister packs containing the pills.

This CCA clarifies that the application of the exclusion does not apply to a taxpayer that performs MPGE activities other than packaging and labelling. The CCA should have equal applicability outside the facts of the CCA to any taxpayer that, in addition to repackaging or labelling property, performs other eligible MPGE activities.

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