Allocation and apportionment of expenses for Sec. 199 purposes: for many taxpayers, calculation of the Sec. 199 deduction will require an enormous amount of work. This article focuses on one aspect of the deduction, the allocation and apportionment of expenses under the Sec. 861 regulations and the proposed Sec. 199 regulations.

Tax Adviser, The, June, 2006 by Fitzpatrick, Arlene; Kraay, Vickie; Rollinson, Margie A.; Schwieterman, Jill

EXECUTIVE SUMMARY

* Sec. 861 REGULATIONS are integral to the Sec. 199 deduction when the Sec. 861 method of allocating deductions is used.

* Regs. Sec. 1.861-8 provides specific allocation rules for some expenses, such as interest and R&E, and a two-step process for other expenses not specifically provide for.

* Taxpayers that will use the Sec. 861 rules in a Sec. 199 context may want to reconsider prior elections under Sec. 861.

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Many calendar-year taxpayers have yet to file their first U.S. income tax return that includes the Sec. 199 deduction introduced by the American Jobs Creation Act of 2004 (AJCA). Even so, taxpayers have certainly needed to calculate the likely deduction, for both estimated tax and...

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