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On February 25, the IRS issued a warning to taxpayers seeking to secure missed domestic production activities deductions under the now obsolete section 199.
1 The IRS maintains that a high percentage of such claims are not properly supported and the alert notes that IRS examiners have been advised to consider penalty provisions, including penalties for an erroneous claim for refund, and even referrals to the Office of Professional Responsibility (OPR). The tone of the alert makes clear that the IRS has serious reservations about such amended return claims. Notwithstanding concerns identified by the IRS, such claims can be sustained. Nonetheless, taxpayers and their advisors should anticipate close scrutiny of these filings.
IR-2021-45, February 25, 2021
WASHINGTON IRS officials issued an alert today concerning amended returns and claims for the Domestic Production Activities Deduction (DPAD). This provision of tax law was repealed as part of the Tax Cuts and Jobs Act for taxable years after December 31, 2017. In the wake of the repeal, the IRS has received a wave of questionable amended returns and claims for tax benefits in the billions of dollars. We have no qualms with taxpayers claiming benefits allowed by law, said Doug O Donnell, Commissioner, Large Business and International Division. But a very high percentage of the claims for the now repealed Domestic Production Activities Deduction are not properly supported by those claiming it.