LB&I directive - Revised guidance for ownership analysis in contract manufacturing arrangement for section 199 purposes 

July 25:  The IRS Large Business and International (LB&I) division posted a directive revising prior guidance to LB&I examiners concerning the ownership analysis in contract manufacturing arrangements in order to determine proper application of a claimed section 199 deduction. LB&I-04-0713-006 (July 24, 2013)

The new LB&I directive (July 2013) updates and supersedes a prior LB&I directive (February 2012) as guidance to LB&I examiners in making a determination whether a taxpayer has the benefits and burdens of ownership under a contract manufacturing arrangement for purposes of Reg. section 1.199-3(f)(1).

As discussed in a July 2013 report [PDF 71 KB], prepared by KPMG LLP, LB&I has reconsidered the “three-part test” approach taken in the February 2012 directive, and essentially has replaced the test with three statements (signed under penalties of perjury) to be provided by the taxpayer and the counterparty to the contract manufacturing arrangement.

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