Domestic Production Activities Deduction

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Domestic Production Activities Deduction

What is the Domestic Production Activities Deduction?

The Domestic Production Activities Deduction (DPAD) also called the “domestic manufacturing deduction” or “U.S. production activities deduction” was passed into law as part of the American Jobs Creation Act of 2004 (PL 108-357) effective for tax years beginning after 2004.

Who qualifies?

All businesses engaged in domestic manufacturing and production activities qualify for IRC § 199 Domestic Production Activities Deduction benefit. Traditional manufacturers qualify but the rules broadened the traditional definition of manufacturing to include companies such as:

  • Traditional manufacturers;
    • Qualifying production property which was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States.
  • Construction firms for construction performed in the United States;
  • Engineering and architectural firms for services performed in the United States for construction projects in the United States; and
  • Electricity, natural gas and potable water producers for U.S. production.

Profitable companies participating in these industries may be entitled to the generous tax and cash benefits provided by this incentive.

DPAD Services

Our DPAD services include the following:

  • Consultation and assessment of IRC § 199 Domestic Production Activities Deduction benefit;
  • Comprehensive analysis to optimize the benefit;
  • Comprehensive DPAD Report;
  • Audit defense included as part of fee; and
  • Compounding the benefits of the overlapping tax provisions.

What clearly distinguishes Paradigm Partners from other service providers is the comprehensive approach to our analysis.  The Paradigm team optimizes DPAD while simultaneously preserving or increasing the export incentives, foreign tax credit utilization, and other federal tax provisions that are all inter-related.  The computations are all supported by a highly sophisticated technology platform and a team with unmatched experience.

Each business, big or small, in the manufacturing sector should consider the DPAD. Although complex, it still represents a valuable tax break. As in any business decision, management should weigh the potential DPAD benefit versus the cost of calculating and supporting it. DPAD is fully phased in at 9% of income from qualified production activities for tax years beginning in 2010 and thereafter, so more businesses will find that DPAD now outweighs the cost.

For more information, use our Contact Us Form or call Karim Solanji at 281-558-7100.

Testimonials

Paradigm Partners...did a phenomenal job of getting us tax credits back to the year 2003 through the year 2006...
Donald F. Volk
CFO
Kenexa®
Testimonials
Much to our pleasure, Paradigm’s engineers were able to identify substantial incremental opportunities which resulted in significant refunds and dollar-for-dollar reductions to our tax liabilities.
John Ehrhard
CFO
Buckeye International, Inc.
Testimonials
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