IRS Chief Counsel - Taxpayer’s packaging of pills not eligible for section 199 exception when engaged in other eligible activities 

November 16: The IRS Office of Chief Counsel today publicly release a memorandum which explains that for section 199 purposes, the exception for repackaging and labeling activities does not apply to a taxpayer that repackages and labels pills that it did not manufacture because the taxpayer engaged in other eligible MPGE (manufacturing, production, growing, or extraction) activities with respect to the blister packs containing the pills by its manufacturing of the blister packs.  CCA 201246030 (dated August 9, 2012, and released November 16, 2012)

Read the memo: CCA 201246030 [PDF 65 KB]


As the Chief Counsel memo notes, for the taxpayer’s gross receipts from the sale of blister packs containing the pills to qualify as domestic production gross receipts (DPGR), the taxpayer must satisfy other requirements of section 199—including the “in whole or in significant part” requirement. To the extent that gross receipts do not qualify as DPGR, the taxpayer can apply Reg. section 1.199-3(d)(1)(ii) to determine whether the gross receipts from the sale of any component of the blister packs containing the pills qualify as DPGR.



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©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.


The KPMG logo and name are trademarks of KPMG International.


KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.


The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

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