[Federal Register Volume 71, Number 235 (Thursday, December 7, 2006)]
[Rules and Regulations]
[Pages 70876-70877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20724]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9293]
RIN 1545-BF88


TIPRA Amendments to Section 199; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to final and temporary 
regulations (TD 9293) that were published in the Federal Register on 
Thursday, October 19, 2006 (71 FR 61662) concerning the amendments made 
by the Tax Increase Prevention and Reconciliation Act of 2005 to 
section 199 of the Internal Revenue Code.

DATES: This correction is effective October 19, 2006.

FOR FURTHER INFORMATION CONTACT: Concerning Sec. Sec.  1.199-2T(e)(2) 
and 1.199-8T(i)(5), Paul Handleman or Lauren Ross Taylor, (202) 622-
3040; concerning Sec. Sec.  1.199-3T(i)(7) and (8), and 1.199-5T, 
Martin Schaffer, (202) 622-3080; and concerning Sec. Sec.  1.199-
7T(b)(4) and 1.199-8T(i)(6), Ken Cohen, (202) 622-7790 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Background

    The final and temporary regulations that are the subject of this 
correction are under section 199 of the Internal Revenue Code.

Need for Correction

    As published, final and temporary regulations (TD 9293) contain 
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 
amendments:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.199-5T also issued under 26 U.S.C. 199(d). * * *
    Section 1.199-7T also issued under 26 U.S.C. 199(d). * * *


0
Par. 4. Section 1.199-2T(e)(2) is amended by revising the eleventh 
sentence of Example 2 paragraph (i) and the seventh sentence of Example 
5 paragraph (iv) to read as follows:


Sec.  1.199-2T  Wage limitation (temporary).

    Example 2. * * *
    (i) * * * For Y's taxable year ending April 30, 2011, the total 
square footage of Y's headquarters is 8,000 square feet, of which 
2,000 square feet is set aside for domestic production activities. * 
* *
    Example 5. * * *
    (iv) * * * The EAG's tentative section 199 deduction is $360,000 
(.09 x (lesser of combined QPAI of $4,000,000 (B's QPAI of 
$4,000,000 + S's QPAI of $0) or combined taxable income of 
$4,200,000 (B's taxable income of $4,000,000 + S's taxable income of 
$200,000))) subject to the W-2 wage limitation of $50,000 (50% x 
($100,000 (B's W-2 wages) + $0 (S's W-2 wages))). * * *


0
Par. 8. Section 1.199-5T is amended by revising sentences eight through 
ten of paragraph (e)(4)(ii)(A) and revising paragraph (g) to read as 
follows:

[[Page 70877]]

Sec.  1.199-5T  Application of section 199 to pass-thru entities for 
taxable years beginning after May 17, 2006, the enactment date of the 
Tax Increase Prevention and Reconciliation Act of 2005 (temporary).

    (e) * * *
    (4) * * *
    (ii) * * *
    (A) * * * In this step, in this example, the portion of the trustee 
commissions not directly attributable to the rental operation ($2,000) 
is directly attributable to non-trade or business activities. In 
addition, the state income and personal property taxes are not directly 
attributable under Sec.  1.652(b)-3(a) to either trade or business or 
non-trade or business activities, so the portion of those taxes not 
attributable to either the PRS interests or the rental operation is not 
a trade or business expense and, thus, is not taken into account in 
computing QPAI. The portion of the state income and personal property 
taxes that is treated as an other trade or business expense is $3,000 
($5,000 x $30,000 total trade or business gross receipts/$50,000 total 
gross receipts). * * *
* * * * *
    (g) No attribution of qualified activities. Except as provided in 
Sec.  1.199-3T(i)(7) regarding qualifying in-kind partnerships and 
Sec.  1.199-3T(i)(8) regarding EAG partnerships, an owner of a pass-
thru entity is not treated as conducting the qualified production 
activities of the pass-thru entity, and vice versa. This rule applies 
to all partnerships, including partnerships that have elected out of 
subchapter K under section 761(a). Accordingly, if a partnership 
manufactures QPP within the United States, or produces a qualified film 
or produces utilities in the United States, and distributes or leases, 
rents, licenses, sells, exchanges, or otherwise disposes of such 
property to a partner who then, without performing its own qualifying 
activity, leases, rents, licenses, sells, exchanges, or otherwise 
disposes of such property, then the partner's gross receipts from this 
latter lease, rental, license, sale, exchange, or other disposition are 
treated as non-DPGR. In addition, if a partner manufactures QPP within 
the United States, or produces a qualified film or produces utilities 
in the United States, and contributes or leases, rents, licenses, 
sells, exchanges, or otherwise disposes of such property to a 
partnership which then, without performing its own qualifying activity, 
leases, rents, licenses, sells, exchanges, or otherwise disposes of 
such property, then the partnership's gross receipts from this latter 
disposition are treated as non-DPGR.
* * * * *

LaNita Van Dyke,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
 [FR Doc. E6-20724 Filed 12-6-06; 8:45 am]
BILLING CODE 4830-01-P