The new domestic production activities deduction (a.k.a., the manufacturing deduction) has generated many unresolved questions. In fact, the problem areas are so significant that individuals and businesses have reported delayed filing of 2005 returns until they get more guidance from the Internal Revenue Service.To say that proper application of the deduction is a "hot" issue may be an understatement, considering the IRS's own estimates of its impact. In requesting comments on the most recent version of Form 8903, Domestic Production Activities Deduction, the IRS estimated that over 17 million individuals and businesses will be affected, and that each taxpayer will average 31 hours and 54 minutes on the form.
The rules for the deduction appear to be a moving target. In this environment, tax strategies and advice must offer a degree of flexibility. This article raises some of the problems being encountered and proposes some solutions, either as a temporary patch or to guide more long-term actions.
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