Instructions For Form 8903 - Domestic Production Activities Deduction - Internal Revenue Service - 2006
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82006
Department of the Treasury
Internal Revenue Service
Instructions for Form 8903
Domestic Production Activities Deduction
Section references are to the Internal
income for all other taxpayers) figured
Who Must File
Revenue Code unless otherwise noted.
without the DPAD.
Individuals, corporations,
cooperatives, estates, and trusts use
However, your DPAD generally
What’s New
Form 8903 to figure their allowable
cannot be more than 50% of the
DPAD from certain trade or business
Form W-2 wages you paid to your
Final regulations. Final regulations
activities. Shareholders of
employees (including Form W-2
under section 199 were issued on
S corporations and partners use
wages allocated to you on a
June 1, 2006. See Additional
information provided by the
Schedule K-1).
Guidance, on this page.
S corporation or partnership to figure
their allowable DPAD. Beneficiaries
Form W-2 wages. For tax years
Additional Guidance
of an estate or trust use information
beginning after May 17, 2006:
provided by the estate or trust to
•
These instructions cover DPAD rules
The limit equal to 50% of Form W-2
figure their allowable DPAD. Patrons
from Internal Revenue Code section
wages is no longer based on Form
of certain agricultural or horticultural
199. They also cover a few rules
W-2 wages from all businesses. Only
cooperatives may be allocated a
addressing common situations from
wages properly allocable to domestic
share of the cooperative’s DPAD.
additional guidance. For more
production gross receipts are
information on the DPAD rules,
included.
However, unless you were
•
generally see Regulations sections
The rules for determining Form
allocated a share of a cooperative’s
1.199-1 through 1.199-9. However,
W-2 wages of partners and S
DPAD or you are a member of an
for tax years beginning before June 1,
corporation shareholders are
expanded affiliated group (EAG), you
2006, you can choose not to rely on
simplified by determining Form W-2
will not be allowed a DPAD unless
any part of the final regulations and
wages without regard to any limit
you can enter on Form 8903 a
rely instead on guidance provided in
based on qualified production
positive amount for all three of the
2005 by Notice 2005-14 and
activities income.
following.
•
Proposed Regulations sections
Qualified production activities
See Form W-2 Wages, on page 5.
1.199-1 through 1.199-8. But, for tax
income (QPAI).
•
Simplified deduction method.
Adjusted gross income for an
years beginning after May 17, 2006,
Under the final regulations, you may
individual, estate, or trust (taxable
you must figure Form W-2 wages with
be able to use the simplified
income for all other taxpayers).
the changes discussed above under
•
deduction method if your average
Form W-2 wages you paid to your
Form W-2 Wages.
annual gross receipts are $100
employees. If you did not pay any
million (up from $25 million) or less.
For guidance on figuring Form W-2
Form W-2 wages (or have Form W-2
See Simplified Deduction Method on
wages, see Form W-2 Wages on
wages allocated to you on a
page 4.
page 5.
Schedule K-1), you cannot claim a
DPAD.
Activities in Puerto Rico. For tax
For guidance on computer
years beginning after December 31,
For details, see the discussions of
software provided to customers over
2005, certain taxpayers can take the
these three items that begin on page
the Internet, see Treasury Decision
domestic production activities
2.
(T.D.) 9262 and Announcement
deduction for activities in Puerto Rico.
Married individuals filing a joint
2006-56.
A special rule applies when figuring
income tax return figure the deduction
Form W-2 wages. See section
You can find the final regulations in
on one Form 8903 using the
199(d)(8) for details.
T.D. 9263 on page 1063 of Internal
applicable items of both spouses.
Revenue Bulletin (I.R.B.) 2006-25 at
General Instructions
Definitions and Special
You can find Notice 2005-14 on page
Rules
Purpose of Form
498 of I.R.B. 2005-7 at
pub/irs-irbs/irb05-07.pdf. You can find
Trade or business. QPAI and Form
Use Form 8903 to figure your
the proposed regulations on page
W-2 wages are figured by only taking
domestic production activities
987 of I.R.B. 2005-47 at
into account items that are
deduction (DPAD).
pub/irs-irbs/irb05-47.pdf. You can find
attributable to the actual conduct of a
Your DPAD is generally 3% of the
T.D. 9262 on page 1040 of I.R.B.
trade or business. An activity qualifies
smaller of:
2006-24 at pub/irs-irbs/
as a trade or business if your primary
irb06-24.pdf. You can find
1. Your qualified production
purpose for engaging in the activity is
Announcement 2006-56 on page 342
activities income (QPAI), or
for income or profit and you are
of I.R.B. 2006-35 at pub/
2. Your adjusted gross income for
involved in the activity with continuity
irs-irbs/irb06-35.pdf.
an individual, estate, or trust (taxable
and regularity. For example, a
Cat. No. 39878Q
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