Internal Revenue Code:Sec. 199. Deduction relating to income attributable to domestic production activities

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter B - Computation of Taxable Income
         PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
       

Statute

  
SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

    (a) Allowance of Deduction.--
       (1) In general.--There shall be allowed as a deduction an 
        amount equal to 9 percent of the lesser of--
          (A) the qualified production activities income of 
              the taxpayer for the taxable year, or
          (B) taxable income (determined without regard to 
              this section) for the taxable year.
       (2) Phasein.--In <<NOTE: Applicability.>> the case of any 
        taxable year beginning after 2004 and before 2010, paragraph (1) 
        shall be applied by substituting for the percentage contained 
        therein the transition percentage determined under the following table:

            For taxable years              The transition
            beginning in:                   percentage is:
            2005 or 2006                           3 
            2007, 2008, or 2009                    6.

    (b) Deduction Limited to Wages Paid.--
       (1) In general.--The amount of the deduction allowable 
        under subsection (a) for any taxable year shall not exceed 50 
        percent of the W-2 wages of the taxpayer for the taxable year.
       (2) W-2 wages.--For purposes of this section--
          (A) In general.--The term `W-2 wages' means, with 
              respect to any person for any taxable year of such 
              person, the sum of the amounts described in paragraphs 
              (3) and (8) of section 6051(a) paid by such person with 
              respect to employment of employees by such person during 
              the calendar year ending during such taxable year.
          (B) Limitation to wages attributable to domestic 
              production.--Such term shall not include any amount 
              which is not properly allocable to domestic production 
              gross receipts for purposes of subsection (c)(1).
          (C) Return requirement.--Such term shall not 
              include any amount which is not properly included in a 
              return filed with the Social Security Administration on 
              or before the 60th day after the due date (including 
              extensions) for such return.
       (3) Acquisitions and dispositions.--The Secretary shall 
        provide for the application of this subsection in cases where
        the taxpayer acquires, or disposes of, the major portion of a 
        trade or business or the major portion of a separate unit of a 
        trade or business during the taxable year.

    (c) Qualified Production Activities Income.--For purposes of this 
      section--
       (1) In general.--The term `qualified production activities 
        income' for any taxable year means an amount equal to the excess 
        (if any) of--
          (A) the taxpayer's domestic production gross 
              receipts for such taxable year, over
          (B) the sum of--
             (i) the cost of goods sold that are 
                allocable to such receipts, and
             (ii) other expenses, losses, or deductions 
                      (other than the deduction allowed under this 
                      section), which are properly allocable to such 
                      receipts.
       (2) Allocation method.--
        The <<NOTE: Regulations.>> Secretary shall prescribe rules for 
        the proper allocation of items described in paragraph (1) for 
        purposes of determining qualified production activities income. 
        Such rules shall provide for the proper allocation of items 
        whether or not such items are directly allocable to domestic 
        production gross receipts.
       (3) Special rules for determining costs.--
          (A) In general.--For purposes of determining costs 
              under clause (i) of paragraph (1)(B), any item or 
              service brought into the United States shall be treated 
              as acquired by purchase, and its cost shall be treated 
              as not less than its value immediately after it entered 
              the United States. <<NOTE: Applicability.>> A similar 
              rule shall apply in determining the adjusted basis of 
              leased or rented property where the lease or rental 
              gives rise to domestic production gross receipts.
           (B) Exports for further manufacture.--In the case 
              of any property described in subparagraph (A) that had 
              been exported by the taxpayer for further manufacture, 
              the increase in cost or adjusted basis under 
              subparagraph (A) shall not exceed the difference between 
              the value of the property when exported and the value of 
              the property when brought back into the United States 
              after the further manufacture.
       (4) Domestic production gross receipts.--
          (A) In general.--The term `domestic production 
              gross receipts' means the gross receipts of the taxpayer 
              which are derived from--
             (i) any lease, rental, license, sale, 
                 exchange, or other disposition of--
                (I) qualifying production property 
                    which was manufactured, produced, grown, 
                    or extracted by the taxpayer in whole or 
                    in significant part within the United States,
                (II) any qualified film produced by the taxpayer, or
                (III) electricity, natural gas, or potable water produced
                     by the taxpayer in the United States,
             (ii) in the case of a taxpayer engaged in 
                  the active conduct of a construction trade or 
                  business, construction of real property performed 
                  in the United States by the taxpayer in the 
                  ordinary course of such trade or business, or
             (iii) in the case of a taxpayer engaged in 
                   the active conduct of an engineering or 
                   architectural services trade or business, 
                   engineering or architectural services performed in 
                   the United States by the taxpayer in the ordinary 
                   course of such trade or business with respect to 
                   the construction of real property in the United 
                   States.
          (B) Exceptions.--Such term shall not include gross 
              receipts of the taxpayer which are derived from--
             (i) the sale of food and beverages prepared 
                 by the taxpayer at a retail establishment, 
             (ii) the transmission or distribution of 
                 electricity, natural gas, or potable water, or
             (iii) the lease, rental, license, sale, 
                   exchange, or other disposition of land.
          (C) Special rule for certain government 
              contracts.--Gross receipts derived from the manufacture 
              or production of any property described in subparagraph 
              (A)(i)(I) shall be treated as meeting the requirements 
              of subparagraph (A)(i) if--
                  (i) such property is manufactured or 
                      produced by the taxpayer pursuant to a contract 
                      with the Federal Government, and
                 (ii) the Federal Acquisition Regulation 
                      requires that title or risk of loss with respect 
                      to such property be transferred to the Federal 
                      Government before the manufacture or production of 
                      such property is complete.
          (D) Partnerships owned by expanded affiliated 
              groups.--For purposes of this paragraph, if all of the 
              interests in the capital and profits of a partnership 
              are owned by members of a single expanded affiliated 
              group at all times during the taxable year of such 
              partnership, the partnership and all members of such 
              group shall be treated as a single taxpayer during such 
              period.
       (5) Qualifying production property.--The term `qualifying 
        production property' means--
          (A) tangible personal property,
          (B) any computer software, and
          (C) any property described in section 168(f)(4).
       (6) Qualified film.--The term `qualified film' means any 
        property described in section 168(f)(3) if not less than 50 
        percent of the total compensation relating to the production of 
        such property is compensation for services performed in the 
        United States by actors, production personnel, directors, and 
        producers. Such term does not include property with respect to 
        which records are required to be maintained under section 2257 
        of title 18, United States Code.
       (7) Related persons.--
          (A) In general.--The term `domestic production 
              gross receipts' shall not include any gross receipts of 
              the taxpayer derived from property leased, licensed, or 
              rented by the taxpayer for use by any related person.
          (B) Related person.--For purposes of subparagraph 
              (A), a person shall be treated as related to another 
              person if such persons are treated as a single employer 
              under subsection (a) or (b) of section 52 or subsection 
              (m) or (o) of section 414, except that determinations 
              under subsections (a) and (b) of section 52 shall be 
              made without regard to section 1563(b).

    (d) Definitions and Special Rules.--
        (1) Application of section to pass-thru entities.--
            (A) Partnerships and s corporations.--In the case 
                of a partnership or S corporation--
                  (i) this section shall be applied at the 
                      partner or shareholder level,
                 (ii) each partner or shareholder shall take 
                      into account such person's allocable share of each 
                      item described in subparagraph (A) or (B) of 
                      subsection (c)(1) (determined without regard to 
                      whether the items described in such subparagraph 
                      (A) exceed the items described in such 
                      subparagraph (B)), and
                (iii) Each partner or shareholder shall be 
                      treated for purposes of subsection (b) as having 
                      W-2 wages for the taxable year in an amount equal 
                      to such person's allocable share of the W-2 wages 
                      of the partnership or S corporation for the 
                      taxable year (as determined under regulations 
                      prescribed by the Secretary).
            (B) Trusts and estates.--In the case of a trust or 
                estate--
                  (i) the items referred to in subparagraph 
                      (A)(ii) (as determined therein) and the W-2 wages 
                      of the trust or estate for the taxable year, shall 
                      be apportioned between the beneficiaries and the 
                      fiduciary (and among the beneficiaries) under 
                      regulations prescribed by the Secretary, and
                 (ii) for purposes of paragraph (2), adjusted 
                      gross income of the trust or estate shall be 
                      determined as provided in section 67(e) with the 
                      adjustments described in such paragraph.
            (C) Regulations.--The Secretary may prescribe 
                rules requiring or restricting the allocation of items 
                and wages under this paragraph and may prescribe such 
                reporting requirements as the Secretary determines 
                appropriate.
       (2) Application to individuals.--In the case of an 
        individual, subsection (a)(1)(B) shall be applied by 
        substituting `adjusted gross income' for `taxable income'. For 
        purposes of the preceding sentence, adjusted gross income shall 
        be determined--
          (A) after application of sections 86, 135, 137, 
                219, 221, 222, and 469, and
          (B) without regard to this section.
       (3) Agricultural and horticultural cooperatives.--
            (A) Deduction allowed to patrons.--Any person who 
                receives a qualified payment from a specified 
                agricultural or horticultural cooperative shall be 
                allowed for the taxable year in which such payment is 
                received a deduction under subsection (a) equal to the 
                portion of the deduction
                allowed under subsection (a) to such cooperative which 
                is--
                  (i) allowed with respect to the portion of 
                      the qualified production activities income to 
                      which such payment is attributable, and
                 (ii) identified by such cooperative in a 
                      written notice mailed to such person during the 
                      payment period described in section 1382(d).
            (B) Cooperative denied deduction for portion of 
                qualified payments.--The taxable income of a specified 
                agricultural or horticultural cooperative shall not be 
                reduced under section 1382 by reason of that portion of 
                any qualified payment as does not exceed the deduction 
                allowable under subparagraph (A) with respect to such 
                payment.
            (C) Taxable income of cooperatives determined 
                without regard to certain deductions.--For purposes of 
                this section, the taxable income of a specified 
                agricultural or horticultural cooperative shall be 
                computed without regard to any deduction allowable under 
                subsection (b) or (c) of section 1382 (relating to 
                patronage dividends, per-unit retain allocations, and 
                nonpatronage distributions).
            (D) Special rule for marketing cooperatives.--For 
                purposes of this section, a specified agricultural or 
                horticultural cooperative described in subparagraph 
                (F)(ii) shall be treated as having manufactured, 
                produced, grown, or extracted in whole or significant 
                part any qualifying production property marketed by the 
                organization which its patrons have so manufactured, 
                produced, grown, or extracted.
            (E) Qualified payment.--For purposes of this 
                paragraph, the term `qualified payment' means, with 
                respect to any person, any amount which--
                  (i) is described in paragraph (1) or (3) of 
                      section 1385(a),
                 (ii) is received by such person from a 
                      specified agricultural or horticultural 
                      cooperative, and
                (iii) is attributable to qualified 
                      production activities income with respect to which 
                      a deduction is allowed to such cooperative under 
                      subsection (a).
            (F) Specified agricultural or horticultural 
                cooperative.--For purposes of this paragraph, the term 
                `specified agricultural or horticultural cooperative' 
                means an organization to which part I of subchapter T 
                applies which is engaged--
                  (i) in the manufacturing, production, 
                      growth, or extraction in whole or significant part 
                      of any agricultural or horticultural product, or
                 (ii) in the marketing of agricultural or 
                      horticultural products.
       (4) Special rule for affiliated groups.--
          (A) In general.--All members of an expanded 
              affiliated group shall be treated as a single 
              corporation for purposes of this section.
          (B) Expanded affiliated group.--For purposes of 
              this section, the term `expanded affiliated group' means 
              an affiliated group as defined in section 1504(a), 
              determined--
             (i) by substituting `more than 50 percent' for `at least 80 
                 percent' each place it appears, and
             (ii) without regard to paragraphs (2) and 
                 (4) of section 1504(b).
          (C) Allocation of deduction.--Except as provided 
              in regulations, the deduction under subsection (a) shall 
              be allocated among the members of the expanded 
              affiliated group in proportion to each member's 
              respective amount (if any) of qualified production 
              activities income.
       (5) Trade or business requirement.--This section shall be 
        applied by only taking into account items which are attributable 
        to the actual conduct of a trade or business.
       (6) Coordination with minimum tax.--The deduction under 
        this section shall be allowed for purposes of the tax imposed by 
        section 55; except that for purposes of section 55, the 
        deduction under subsection (a) shall be 9 percent of the lesser 
        of--
    (6) Coordination with minimum tax.--For purposes of 
        determining alternative minimum taxable income under section 
        55--
            (A) qualified production activities income shall 
                be determined without regard to any adjustments under 
                sections 56 through 59, and
            (B) in the case of a corporation, subsection 
                (a)(1)(B) shall be applied by substituting `alternative 
                minimum taxable income' for `taxable income'.
    (7) Unrelated <<NOTE: Applicability.>> business taxable 
        income.--For purposes of determining the tax imposed by section 
        511, subsection (a)(1)(B) shall be applied by substituting 
        `unrelated business taxable income' for `taxable income'.
    (8) Treatment of activities in puerto rico.--
                    (A) In general.--In the case of any taxpayer with 
                gross receipts for any taxable year from sources within 
                the Commonwealth of Puerto Rico, if all of such receipts 
                are taxable under section 1 or 11 for such taxable year, 
                then for purposes of determining the domestic production 
                gross receipts of such taxpayer for such taxable year 
                under subsection (c)(4), the term `United States' shall 
                include the Commonwealth of Puerto Rico.
                    (B) Special rule for applying wage limitation.--In 
                the case of any taxpayer described in subparagraph (A), 
                for purposes of applying the limitation under subsection 
                (b) for any taxable year, the determination of W-2 wages 
                of such taxpayer shall be made without regard to any 
                exclusion under section 3401(a)(8) for remuneration paid 
                for services performed in Puerto Rico.
                    (C) Termination.--This paragraph shall apply only 
                with respect to the first 2 taxable years of the 
                taxpayer beginning after December 31, 2005, and before 
                January 1, 2008.
    (9) Regulations.--The Secretary shall prescribe such 
        regulations as are necessary to carry out the purposes of this 
        section , including regulations which prevent more than 1 taxpayer 
        from being allowed a deduction under this section with respect 
        to any activity described in subsection (c)(4)(A)(i).
  

Sources

    

References in Text

                             REFERENCES IN TEXT
 

Miscellaneous

                                 AMENDMENTS

2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 401. DEDUCTION ALLOWABLE WITH RESPECT TO INCOME ATTRIBUTABLE TO 
            DOMESTIC PRODUCTION ACTIVITIES IN PUERTO RICO.
    (a) In General.--Subsection (d) of section 199 <<NOTE: 26 USC 
199.>> (relating to definitions and special rules) is amended by 
redesignating paragraph (8) as paragraph (9) and by inserting after 
paragraph (7) the following new paragraph:
            ``(8) Treatment of activities in puerto rico.--
                    ``(A) In general.--In the case of any taxpayer with 
                gross receipts for any taxable year from sources within 
                the Commonwealth of Puerto Rico, if all of such receipts 
                are taxable under section 1 or 11 for such taxable year, 
                then for purposes of determining the domestic production 
                gross receipts of such taxpayer for such taxable year 
                under subsection (c)(4), the term `United States' shall 
                include the Commonwealth of Puerto Rico.
                    ``(B) Special rule for applying wage limitation.--In 
                the case of any taxpayer described in subparagraph (A), 
                for purposes of applying the limitation under subsection 
                (b) for any taxable year, the determination of W-2 wages 
                of such taxpayer shall be made without regard to any 
                exclusion under section 3401(a)(8) for remuneration paid 
                for services performed in Puerto Rico.
                    ``(C) Termination.--This paragraph shall apply only 
                with respect to the first 2 taxable years of the 
                taxpayer beginning after December 31, 2005, and before 
                January 1, 2008.''.

    2006 - P.L. 109-222
    SEC. 514. ONLY WAGES ATTRIBUTABLE TO DOMESTIC PRODUCTION TAKEN INTO 
            ACCOUNT IN DETERMINING DEDUCTION FOR DOMESTIC PRODUCTION.
    (a) In General.--Paragraph (2) of section 199(b) (relating to W-2 
    wages) is amended to read as follows:
            ``(2) W-2 wages.--For purposes of this section--
                    ``(A) In general.--The term `W-2 wages' means, with 
                respect to any person for any taxable year of such 
                person, the sum of the amounts described in paragraphs 
                (3) and (8) of section 6051(a) paid by such person with 
                respect to employment of employees by such person during 
                the calendar year ending during such taxable year.
                    ``(B) Limitation to wages attributable to domestic 
                production.--Such term shall not include any amount 
                which is not properly allocable to domestic production 
                gross receipts for purposes of subsection (c)(1).
                    ``(C) Return requirement.--Such term shall not 
                include any amount which is not properly included in a 
                return filed with the Social Security Administration on 
                or before the 60th day after the due date (including 
                extensions) for such return.''.
    (b) Simplification of Rules for Determining W-2 Wages of Partners 
    and S Corporation Shareholders.--
            (1) In general.--Clause (iii) of section 199(d)(1)(A) is 
        amended to read as follows:
                          ``(iii) each partner or shareholder shall be 
                      treated for purposes of subsection (b) as having 
                      W-2 wages for the taxable year in an amount equal 
                      to such person's allocable share of the W-2 wages 
                      of the partnership or S corporation for the 
                      taxable year (as determined under regulations 
                      prescribed by the Secretary).''.
            (2) Conforming amendment.--Paragraph (2) of section 199(a) 
        is amended by striking ``and subsection (d)(1)''.
    (c) Effective Date.--The <<NOTE: 26 USC 199 note.>> amendments made 
    by this section shall apply to taxable years beginning after the date of 
    the enactment of this Act.

    2005 - P.L. 109-135, Section 403
            (1) Paragraph (1) of section 199(b) is amended by striking 
        ``the employer'' and inserting ``the taxpayer''.
            (2) Paragraph (2) of section 199(b) is amended to read as 
        follows:
            ``(2) W-2 wages.--For purposes of this section, the term `W-
        2 wages' means, with respect to any person for any taxable year 
        of such person, the sum of the amounts described in
        paragraphs (3) and (8) of section 6051(a) paid by such person 
        with respect to employment of employees by such person during 
        the calendar year ending during such taxable year. Such term 
        shall not include any amount which is not properly included in a 
        return filed with the Social Security Administration on or 
        before the 60th day after the due date (including extensions) 
        for such return.''.
            (3) Subparagraph (B) of <<NOTE: 26 USC 199.>> section 
        199(c)(1) is amended by inserting ``and'' at the end of clause 
        (i), by striking clauses (ii) and (iii), and by inserting after 
        clause (i) the following:
                          ``(ii) other expenses, losses, or deductions 
                      (other than the deduction allowed under this 
                      section), which are properly allocable to such 
                      receipts.''.
            (4) Paragraph (2) of section 199(c) is amended to read as 
        follows:
            ``(2) Allocation method.--
        The <<NOTE: Regulations.>> Secretary shall prescribe rules for 
        the proper allocation of items described in paragraph (1) for 
        purposes of determining qualified production activities income. 
        Such rules shall provide for the proper allocation of items 
        whether or not such items are directly allocable to domestic 
        production gross receipts.''.
            (5) Subparagraph (A) of section 199(c)(4) is amended by 
        striking clauses (ii) and (iii) and inserting the following new 
        clauses:
                          ``(ii) in the case of a taxpayer engaged in 
                      the active conduct of a construction trade or 
                      business, construction of real property performed 
                      in the United States by the taxpayer in the 
                      ordinary course of such trade or business, or
                          ``(iii) in the case of a taxpayer engaged in 
                      the active conduct of an engineering or 
                      architectural services trade or business, 
                      engineering or architectural services performed in 
                      the United States by the taxpayer in the ordinary 
                      course of such trade or business with respect to 
                      the construction of real property in the United 
                      States.''.
            (6) Subparagraph (B) of section 199(c)(4) is amended by 
        striking ``and'' at the end of clause (i), by striking the 
        period at the end of clause (ii) and inserting ``, or'', and by 
        adding at the end the following:
                          ``(iii) the lease, rental, license, sale, 
                      exchange, or other disposition of land.''.
            (7) Paragraph (4) of section 199(c) is amended by adding at 
        the end the following new subparagraphs:
                    ``(C) Special rule for certain government 
                contracts.--Gross receipts derived from the manufacture 
                or production of any property described in subparagraph 
                (A)(i)(I) shall be treated as meeting the requirements 
                of subparagraph (A)(i) if--
                          ``(i) such property is manufactured or 
                      produced by the taxpayer pursuant to a contract 
                      with the Federal Government, and
                          ``(ii) the Federal Acquisition Regulation 
                      requires that title or risk of loss with respect 
                      to such property be transferred to the Federal 
                      Government before the manufacture or production of 
                      such property is complete.
                    ``(D) Partnerships owned by expanded affiliated 
                groups.--For purposes of this paragraph, if all of the 
                interests in the capital and profits of a partnership 
                are owned by members of a single expanded affiliated 
                group at all times during the taxable year of such 
                partnership, the partnership and all members of such 
                group shall be treated as a single taxpayer during such 
                period.''.
            (8) Paragraph (1) of <<NOTE: 26 USC 199.>> section 199(d) is 
        amended to read as follows:
            ``(1) Application of section to pass-thru entities.--
                    ``(A) Partnerships and s corporations.--In the case 
                of a partnership or S corporation--
                          ``(i) this section shall be applied at the 
                      partner or shareholder level,
                          ``(ii) each partner or shareholder shall take 
                      into account such person's allocable share of each 
                      item described in subparagraph (A) or (B) of 
                      subsection (c)(1) (determined without regard to 
                      whether the items described in such subparagraph 
                      (A) exceed the items described in such 
                      subparagraph (B)), and
                          ``(iii) each partner or shareholder shall be 
                      treated for purposes of subsection (b) as having 
                      W-2 wages for the taxable year in an amount equal 
                      to the lesser of--
                                    ``(I) such person's allocable share 
                                of the W-2 wages of the partnership or S 
                                corporation for the taxable year (as 
                                determined under regulations prescribed 
                                by the Secretary), or
                                    ``(II) 2 times 9 percent of so much 
                                of such person's qualified production 
                                activities income as is attributable to 
                                items allocated under clause (ii) for 
                                the taxable year.
                    ``(B) Trusts and estates.--In the case of a trust or 
                estate--
                          ``(i) the items referred to in subparagraph 
                      (A)(ii) (as determined therein) and the W-2 wages 
                      of the trust or estate for the taxable year, shall 
                      be apportioned between the beneficiaries and the 
                      fiduciary (and among the beneficiaries) under 
                      regulations prescribed by the Secretary, and
                          ``(ii) for purposes of paragraph (2), adjusted 
                      gross income of the trust or estate shall be 
                      determined as provided in section 67(e) with the 
                      adjustments described in such paragraph.
                    ``(C) Regulations.--The Secretary may prescribe 
                rules requiring or restricting the allocation of items 
                and wages under this paragraph and may prescribe such 
                reporting requirements as the Secretary determines 
                appropriate.''.
            (9) Paragraph (3) of section 199(d) is amended to read as 
        follows:
            ``(3) Agricultural and horticultural cooperatives.--
                    ``(A) Deduction allowed to patrons.--Any person who 
                receives a qualified payment from a specified 
                agricultural or horticultural cooperative shall be 
                allowed for the taxable year in which such payment is 
                received a deduction under subsection (a) equal to the 
                portion of the deduction
                allowed under subsection (a) to such cooperative which 
                is--
                          ``(i) allowed with respect to the portion of 
                      the qualified production activities income to 
                      which such payment is attributable, and
                          ``(ii) identified by such cooperative in a 
                      written notice mailed to such person during the 
                      payment period described in section 1382(d).
                    ``(B) Cooperative denied deduction for portion of 
                qualified payments.--The taxable income of a specified 
                agricultural or horticultural cooperative shall not be 
                reduced under section 1382 by reason of that portion of 
                any qualified payment as does not exceed the deduction 
                allowable under subparagraph (A) with respect to such 
                payment.
                    ``(C) Taxable income of cooperatives determined 
                without regard to certain deductions.--For purposes of 
                this section, the taxable income of a specified 
                agricultural or horticultural cooperative shall be 
                computed without regard to any deduction allowable under 
                subsection (b) or (c) of section 1382 (relating to 
                patronage dividends, per-unit retain allocations, and 
                nonpatronage distributions).
                    ``(D) Special rule for marketing cooperatives.--For 
                purposes of this section, a specified agricultural or 
                horticultural cooperative described in subparagraph 
                (F)(ii) shall be treated as having manufactured, 
                produced, grown, or extracted in whole or significant 
                part any qualifying production property marketed by the 
                organization which its patrons have so manufactured, 
                produced, grown, or extracted.
                    ``(E) Qualified payment.--For purposes of this 
                paragraph, the term `qualified payment' means, with 
                respect to any person, any amount which--
                          ``(i) is described in paragraph (1) or (3) of 
                      section 1385(a),
                          ``(ii) is received by such person from a 
                      specified agricultural or horticultural 
                      cooperative, and
                          ``(iii) is attributable to qualified 
                      production activities income with respect to which 
                      a deduction is allowed to such cooperative under 
                      subsection (a).
                    ``(F) Specified agricultural or horticultural 
                cooperative.--For purposes of this paragraph, the term 
                `specified agricultural or horticultural cooperative' 
                means an organization to which part I of subchapter T 
                applies which is engaged--
                          ``(i) in the manufacturing, production, 
                      growth, or extraction in whole or significant part 
                      of any agricultural or horticultural product, or
                          ``(ii) in the marketing of agricultural or 
                      horticultural products.''.
            (10) Clause (i) of <<NOTE: 26 USC 199.>> section 
        199(d)(4)(B) is amended--
                    (A) by striking ``50 percent'' and inserting ``more 
                than 50 percent'', and
                    (B) by striking ``80 percent'' and inserting ``at 
                least 80 percent''.
            (11)(A) Paragraph (6) of section 199(d) is amended to read 
        as follows:
            ``(6) Coordination with minimum tax.--For purposes of 
        determining alternative minimum taxable income under section 
        55--
                    ``(A) qualified production activities income shall 
                be determined without regard to any adjustments under 
                sections 56 through 59, and
                    ``(B) in the case of a corporation, subsection 
                (a)(1)(B) shall be applied by substituting `alternative 
                minimum taxable income' for `taxable income'.''.
            (B) Paragraph (2) of section 199(a) is <<NOTE: 26 USC 
        199.>> amended by striking ``subsections (d)(1) and (d)(6)'' and 
        inserting ``subsection (d)(1)''.
            (12) Subsection (d) of section 199 is amended by 
        redesignating paragraph (7) as paragraph (8) and by inserting 
        after paragraph (6) the following new paragraph:
            ``(7) Unrelated <<NOTE: Applicability.>> business taxable 
        income.--For purposes of determining the tax imposed by section 
        511, subsection (a)(1)(B) shall be applied by substituting 
        `unrelated business taxable income' for `taxable income'.''.
            (13) Paragraph (8) of section 199(d), as redesignated by 
        paragraph (12), is amended by inserting ``, including 
        regulations which prevent more than 1 taxpayer from being 
        allowed a deduction under this section with respect to any 
        activity described in subsection (c)(4)(A)(i)'' before the 
        period at the end.

   2004 - Pub.L. 108-357, Sec. 102(a).  Established this Section 199.

                       EFFECTIVE DATE OF 2006 AMENDMENT
2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 401(b) <<NOTE: 26 USC 199 note.>> Effective Date.--The amendments made 
by subsection (a) shall apply to taxable years beginning after December 
31, 2005.

                       EFFECTIVE DATE OF 2006 AMENDMENT
    2006 - P.L. 109-222
    SEC. 514. ONLY WAGES ATTRIBUTABLE TO DOMESTIC PRODUCTION TAKEN INTO 
            ACCOUNT IN DETERMINING DEDUCTION FOR DOMESTIC PRODUCTION.
        (c) Effective Date.--The <<NOTE: 26 USC 199 note.>> amendments made 
    by this section shall apply to taxable years beginning after the date of 
    the enactment of this Act.

Personal tools