Calendar Year Applies In Determining DPAD Wage Limitation.

The taxpayer, a corporation, computed its income on a 52 or 53-week tax year ending on the last Saturday in December.  A question arose about the corporation's computation of the 50 percent of W-2 wage limitation for purposes of the domestic production activities deduction (DPAD) under I.R.C. Sec. 199.  The wage limitation is computed based on wages paid to employees during the calendar year that ends during the employer's tax year.  While that would typically be the 12-month period ending on December 31, and would coincide with the calendar year, in this instance the taxpayer's 52 or 53-week tax year for 2017 did not include a calendar year and, thus, did not coincide with a calendar year.  As a result, the corporation was concerned that it might not be entitled to a DPAD for 2017 because there was no tax year to determined the W-2 wage limitation.  However, the IRS determined that under I.R.C. Sec. 441(f) allowed the corporation to deem its 2017 tax year as ending on December 31, 2017 - the last day of the calendar month ending nearest to the 52 or 53-week tax year.  That means that the calendar year 2017 will be the corporation's tax year for purposes of determining the wage limitation for DPAD purposes.  Priv. Ltr. Rul. 201447027 (Aug. 19, 2014).

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