The taxpayer created electronic versions of its books, and provided the contract manufacturer with the electronic version for mass production. It was the contract manufacturer that mass printed and assembled copies of the books, using its employees, machinery, and plant.
The Chief Counsel found that the taxpayer’s activities—design, development, creation, materials analysis and selection—did not constitute manufacturing, production, growth, or extraction (MPGE) of qualifying production property pursuant to section 199.
The Chief Counsel did not address which party—the publisher or the contract manufacturer—maintained benefits and burdens of ownership while the activities of the contract manufacturer occurred, but did reject the IRS field agent’s contention that a taxpayer must apply physical force to the property in order to satisfy the MPGE requirement of section 199.
Read the Chief Counsel advice memo [PDF 67 KB]
*Chief Counsel Advice documents are legal advice, signed by executives in the National Office of the IRS Office of Chief Counsel and issued to IRS personnel who are national program executives and managers. The documents are issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. However, they are not to be used or cited as precedent.