Instructions For Form 8903 - Domestic Production Activities Deduction - Internal Revenue Service - 2006 Page 5
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8“operative section” described in
than 3% of its UBTI figured without
Figuring Form W-2 wages for tax
Regulations section 1.861-8(f).
the DPAD.
years beginning before May 18,
2006. You can use one of the
For details, see Final Regulations
Form W-2 Wages
following three methods to figure your
section 1.199-4(d) or see section
Form W-2 wages.
Your allowable DPAD generally
4.05(3)(c) of Notice 2005-14 and
•
Unmodified box method.
cannot be more than 50% of the
Proposed Regulations section
•
Modified box 1 method.
Form W-2 wages you paid to your
1.199-4(d) as discussed under
•
Tracking wages method.
employees (including Form W-2
Additional Guidance on page 1.
wages allocated to you on a
Relevant Forms W-2. To figure
For guidance on automatic
Schedule K-1). If you did not pay
your Form W-2 wages, generally use
approval to change certain elections
Form W-2 wages, you generally are
the sum of the amounts you properly
relating to the apportionment of
not allowed a DPAD. However, you
report for each employee on Form
interest expense and research and
do not need Form W-2 wages to
W-2, Wage and Tax Statement, for
experimentation expenditures, see
claim a DPAD you are allocated as a:
the calendar year ending with or
Rev. Proc. 2006-42. You can find
•
Patron of an agricultural or
within your tax year. However, do not
Rev. Proc. 2006-42 on page 931 of
horticultural cooperative, or
use any amounts reported on a Form
I.R.B. 2006-47 at
•
Member of an expanded affiliated
W-2 filed with the Social Security
irs-irbs/irb06-47.pdf .
group.
Administration more than 60 days
S corporations and partnerships.
after its due date (including
Form W-2 Wages for tax years
S corporations and partnerships
extensions).
beginning after May 17, 2006.
cannot use the section 861 method to
When figuring your DPAD for a tax
Non-duplication rule. Amounts
figure QPAI. See S corporations and
year beginning after May 17, 2006,
that are treated as Form W-2 wages
partnerships on page 3.
the limit equal to 50% of Form W-2
for a tax year under any method
Estates and trusts. An estate or
wages is no longer based on Form
cannot be treated as Form W-2
trust that cannot use the simplified
W-2 wages from all businesses. Only
wages for any other tax year. Also, an
deduction method must use the
wages properly allocable to DPGR
amount cannot be treated as Form
section 861 method to allocate and
are included.
W-2 wages by more than one
apportion its indirectly allocable trade
Form W-2 wages from an
taxpayer.
or business deductions, expenses, or
S corporation or partnership. An
losses between DPGR and
Unmodified box method. Under
S corporation or partnership generally
non-DPGR. All estates and trusts
the unmodified box method, Form
will figure its Form W-2 wages and
must allocate directly allocable
W-2 wages are the smaller of:
report each shareholder’s or partner’s
deductions, expenses, or losses
1. The sum of the amounts
share on Schedule K-1. However,
between DPGR and non-DPGR
reported in box 1 of the relevant
when figuring your DPAD for an S
under Regulations section 1.652(b)-3.
Forms W-2, or
corporation or partnership with a tax
2. The sum of the amounts
year beginning before May 18, 2006,
Adjusted Gross or
reported in box 5 of the relevant
your allocable share of Form W-2
Forms W-2.
wages from the S corporation or
Taxable Income
partnership is limited to 6% of your
Your allowable DPAD generally
Modified box 1 method. Under
share of any QPAI derived from the
cannot be more than 3% of your
the modified box 1 method, Form W-2
S corporation or partnership.
adjusted gross income if you are an
wages are figured as follows.
The S corporation or partnership
individual, estate, or trust (taxable
1. Add the amounts reported in
should have applied the 6% limit for
income for all other taxpayers) figured
box 1 of the relevant Forms W-2.
Form W-2 wages you report on line
without the DPAD. If you do not have
2. Add all the amounts described
13. However, you must apply this limit
adjusted gross or taxable income,
below and included in box 1 of the
to Form W-2 wages you report on line
you generally are not allowed a
relevant Forms W-2.
12. If your share of QPAI derived
DPAD. However, you do not need
from an S corporation or partnership
a. Amounts not considered wages
adjusted gross or taxable income to
with a tax year beginning before May
for federal income tax withholding
claim a DPAD you are allocated as a:
•
18, 2006, is zero or less, you cannot
purposes.
Patron of an agricultural or
use any of its Form W-2 wages to
b. Supplemental unemployment
horticultural cooperative, or
•
figure your DPAD.
compensation benefits.
Member of an expanded affiliated
c. Sick pay or annuity payments
Form W-2 wages from an estate or
group.
from which the recipient requested
trust. An estate or trust generally will
Agricultural and horticultural
federal income tax withholding.
figure its Form W-2 wages and
cooperatives. For this purpose,
3. Subtract (2) from (1).
apportion them between the
figure taxable income without taking
4. Add any amounts reported in
beneficiary and the fiduciary (and
into account any allowable deduction
box 12 of the relevant Forms W-2 that
among the beneficiaries) and report
for patronage dividends, per-unit
are properly coded D, E, F, G, or S.
each beneficiary’s share on Schedule
retain allocations, or nonpatronage
5. Add (3) and (4).
K-1 (Form 1041). However, when
distributions.
figuring your DPAD for an estate or
Estates and trusts. See the
Tracking wages method. Under
trust with a tax year beginning before
instructions for line 9 on page 6 to
the tracking wages method, Form
May 18, 2006, your allocable share of
figure adjusted gross income.
W-2 wages are figured as follows.
Form W-2 wages from the estate or
Unrelated business taxable income
trust is limited to 6% of your share of
1. Add the amounts reported in
(UBTI). The allowable DPAD of an
any QPAI derived from the estate or
box 1 of the relevant Forms W-2 that
organization taxed on its UBTI under
trust. The estate or trust should have
are also wages for federal income tax
section 511 generally cannot be more
applied this limit.
withholding purposes.
-5-
Instructions for Form 8903
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