[Federal Register Volume 71, Number 129 (Thursday, July 6, 2006)]
[Rules and Regulations]
[Page 38262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-10245]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9262]
RIN 1545-BF57


Computer Software Under Section 199(c)(5)(B); Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains a correction to temporary regulations 
(TD 9262) that were published in the Federal Register on Thursday, June 
1, 2006 (71 FR 31074) concerning the application of section 199 of the 
Internal Revenue Code, which provides a deduction for income 
attributable to domestic production activities, to certain transactions 
involving computer software.

DATES: These corrections are effective June 1, 2006.

FOR FURTHER INFORMATION CONTACT: Paul Handleman or Lauren RossTaylor, 
(202) 622-3040 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The correction notice that is the subject of this document is under 
section 199 of the Internal Revenue Code.

Need for Correction

    As published, the correction notice (TD 9262) contains errors that 
may prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

0
Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


Sec.  1.199-3T  [Corrected]

0
Par. 2. Section 1.199-3T is amended by revising paragraphs (i)(6)(iii) 
introductory text and Example 5 to read as follows:


Sec.  1.199-3T  Domestic production gross receipts (temporary).

* * * * *
    (i) * * *
    (6) * * *
    (iii) Exceptions. Notwithstanding paragraph (i)(6)(ii) of this 
section, if a taxpayer derives gross receipts from providing to 
customers computer software MPGE in whole or in significant part by the 
taxpayer within the United States for the customers' direct use while 
connected to the Internet (online software), then such gross receipts 
will be treated as being derived from the lease, rental, license, sale, 
exchange, or other disposition of computer software only if--
* * * * *

    Example 5. The facts are the same as in Example 4, except that O 
does not sell the tax preparation computer software to customers 
affixed to a compact disc or by download and O's only method of 
providing the tax preparation computer software to customers is over 
the Internet. P, an unrelated person, derives, on a regular and 
ongoing basis in its business, gross receipts from the sale to 
customers of P's substantially identical tax preparation computer 
software that has been affixed to a compact disc as well as from the 
sale to customers of P's substantially identical tax preparation 
computer software that customers have downloaded from the Internet. 
Under paragraph (i)(6)(iii)(B) of this section, O's gross receipts 
derived from providing its tax preparation computer software to 
customers over the Internet will be treated as derived from the 
lease, rental, license, sale, exchange, or other disposition of 
computer software and are DPGR (assuming all the other requirements 
of Sec.  1.199-3 are met).
* * * * *


Sec.  1.199-8T  [Corrected]

0
Par. 3. Section 1.199-8T is amended by revising paragraph (i)(4) to 
read as follows:


Sec.  1.199-8T  Other rules (temporary).

    (i) * * *
    (4) Computer software. Section 1.199-3T(i)(6)(ii) through (v) are 
applicable for taxable years beginning on or after June 1, 2006. 
Taxpayers may apply these temporary regulations to taxable years 
beginning after December 31, 2004, and before June 1, 2006. The 
applicability of Sec.  1.199-3T(i)(6)(ii) through (v) expires on or 
before May 22, 2009.

Guy R. Traynor,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
 [FR Doc. E6-10245 Filed 7-5-06; 8:45 am]
BILLING CODE 4830-01-P