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tax year is treated as ending on the

Regulations section 1.199-7(d)(4) as

Line 18

close of the day on which the

discussed under Additional Guidance

Expanded Affiliated

corporation’s status as a member of

on page 1.

the EAG changes. The second tax

Group Allocation

A consolidated group’s DPAD (or

year is treated as beginning on the

the DPAD allocated to a consolidated

The instructions below explain how

day after the corporation’s status as a

group that is a member of an EAG) is

expanded affiliated groups (EAGs)

member of the EAG changes.

allocated to the members of the

(defined on page 2) figure and report

Making the section 199 closing of

consolidated group in proportion to

the DPAD. Certain members of an

the books election. A corporation

each member’s QPAI, if any,

expanded affiliated group may not be

makes the section 199 closing of the

regardless of whether the

required to complete the entire Form

books election by attaching the

consolidated group member has:

8903. See How to Report below.

•

following statement to the

Separate taxable income or loss for

corporation’s timely filed (including

the tax year, and

Computation of the EAG’s

•

extensions) federal income tax return

Form W-2 wages for the tax year.

DPAD

for the tax year that includes the

For purposes of allocating the

In general, the DPAD for an EAG is

periods that are subject to the

DPAD of a consolidated group among

determined by aggregating each

election: ‘‘The section 199 closing of

its members, if a consolidated group

member’s taxable income or loss,

the books election is hereby made

member has negative QPAI, the

QPAI, and Form W-2 wages. A

with respect to [insert name of

member’s QPAI is treated as zero.

member’s QPAI may be positive or

corporation and its employer

negative. Also, a member’s taxable

identification number] with respect to

Simplified deduction and small

income or loss and QPAI are

business simplified overall

the following periods [insert dates of

determined under the member’s

methods. For purposes of applying

two periods between which items are

method of accounting.

allocated pursuant to the closing of

the simplified deduction method and

the small business simplified overall

the books method].’’

Members with different tax years.

method, a consolidated group

If members of an EAG have different

If you filed your original return on

determines its QPAI by reference to

tax years, in determining the DPAD of

time without making the election, you

its members’ DPGR, non-DPGR, cost

a member, the reporting member

can make the election on an

of goods sold, and all other

must take into account the taxable

amended return filed no later than 6

deductions, expenses, or losses,

income or loss, QPAI, and Form W-2

months after the due date of your tax

determined on a consolidated basis.

wages of each group member that

return (excluding extensions). Enter

are both:

“Filed pursuant to section

How to Report

•

Attributable to the period that the

301.9100-2” at the top of the

All members of an EAG are treated

member of the EAG and the reporting

amended return.

as a single corporation for purposes

member are both members of the

Once made, the election is

of determining the DPAD. However,

EAG, and

irrevocable.

•

the DPAD is allocated to each

Taken into account in a tax year

member.

that begins after 2004 and ends with

Consolidated Groups

or within the tax year of the reporting

EAG reporting member. The EAG

Under section 199, a consolidated

member with respect to which the

chooses a reporting member from

group is treated as a single member

DPAD is figured.

amongst all members of the EAG to

of the EAG. If all members of an EAG

figure the DPAD for all EAG members

For an example that explains the

are members of the same

with the same tax year. The reporting

above requirements, see Final or

consolidated group, the DPAD of the

member completes lines 8 through 12

Proposed Regulations section

consolidated group is determined

and lines 14 through 16 of the Form

1.199-7(h)(2) as discussed under

based on the consolidated taxable

8903 for the group.

Additional Guidance on page 1.

income or loss, QPAI, and Form W-2

wages of the group and not the

The reporting member also does

Allocation of the DPAD to

separate taxable income or loss,

the following.

Members of the EAG

QPAI, and Form W-2 wages of its

1. Enters the portion of the

members. The consolidated group

The EAG’s DPAD is allocated among

deduction allocated to the other

will generally file only one Form 8903.

members of the EAG based on the

members of the EAG as a negative

For details, see Final or Proposed

ratio of each member’s QPAI to the

number on line 18.

Regulations section 1.199-7(d)(4) as

total QPAI of the EAG. The allocation

2. Completes lines 17 and 19.

discussed under Additional Guidance

is made regardless of whether the

3. Attaches a schedule showing

on page 1.

EAG member has taxable income or

how the reporting member figured its

loss or Form W-2 wages for the tax

If an EAG includes both

own QPAI.

year. If a member has negative QPAI,

consolidated and non-consolidated

4. Attaches a schedule that shows

that member’s QPAI is treated as

members, the consolidated (not

how the DPAD was figured for the

zero for purposes of the allocation.

separate) taxable income or loss,

group and each member’s name,

Section 199 closing of the books

QPAI, and Form W-2 wages of the

EIN, and share of the DPAD.

method. Under the section 199

consolidated group are aggregated

5. Provides a copy of the group

closing of the books method, a

with the taxable income or loss,

DPAD computation schedule to the

corporation’s taxable income or loss,

QPAI, and Form W-2 wages of the

other members of the group.

QPAI, and Form W-2 wages for the

non-consolidated group members to

period during which the corporation

determine the DPAD. For details, see

EAG member other than the

was a member of the EAG are figured

Final Regulations section

reporting member. An EAG

by treating the corporation’s tax year

1.199-7(d)(4) or see section 4.09(4)

member other than the reporting

as two separate tax years. The first

of Notice 2005-14 and Proposed

member does the following.

-7-

Instructions for Form 8903

Instructions For Form 8903 - Domestic Production Activities Deduction - Internal Revenue Service - 2006 Page 7

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