IRS Chief Counsel - Section 199 and co-operative advertising allowances between retailers and vendors 

January 13:  The IRS publicly released a memorandum* from the IRS Office of Chief Counsel addressing whether “co-operative advertising allowances” that a retailer receives from a vendor, for placement of advertisement of the vendor’s products in the retailer’s advertising flyer, may be treated as domestic production gross receipts (DPGR) for purposes of section 199. AM2014-001 (release date January 10, 2014, and dated December 13, 2013)

The Chief Counsel memo [PDF 91 KB] states that the section 199 determination is based on a facts-and-circumstances analysis of each situation, and provides a general rule that whether the co-operative advertising allowances are DPGR depends on whether the allowances are advertising income from the retailer’s performance of advertising services for the vendor and whether the flyers qualify for the advertising income exception under Reg. 1.199-(3)(i)(5)(ii).

The memo includes examples illustrating the proper treatment of the co-operative advertising allowances for federal income tax purposes.

*The memorandum is legal advice, signed by executives in the National Office of the Office of Chief Counsel and issued to IRS personnel who are national program executives and managers. The memo is issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. It is not to be used or cited as precedent.

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