Domestic Production Activities Deduction & Foreign Tax Credit Utilization

The DPAD was created as part of the American Jobs Creation Act of 2004 and eliminated by the TCJA.  The DPAD generally allows a 9% deduction for qualified production activities income, but is further limited by the lesser of 50% of qualified W-2 wages or taxable income computed without regard to the DPAD.

Many companies have not captured the maximum domestic Production Activities Deduction (“DPAD”) they may be entitled to for the 2005-2017 taxable years. The reasons for understatement vary, but if a company is not limited by either the W-2 wage limit or the taxable income limit, it makes sense to review their Treas. Reg. 1.861-8 methodology to determine if QPAI can be increased.

  • Forte helps companies simultaneously optimize both DPAD and FTC utilization by thoroughly analyzing and improving their Treas. Reg. 1.861-8 methodology, while providing the support necessary to sustain their tax positions.
  • Conducting this review for the 2017 tax year is vital for companies subject to Section 965(a) transition tax as that inclusion will increase their overall taxable income limitation and otherwise have major impact on the utilization of foreign tax credits and other valuable tax attributes.

VantagePoint’s fully integrated tax optimization database simultaneously calculates the Section 965(a) transition tax, DPAD and FTC utilization.