Форма 8903 Інструкції
Інструкція по формуванню 8903, дедукція вітчизняної виробничої діяльності
Ред. Грудень 2019
Пов'язані форми
- Форма 8903 - Зниження виробничої діяльності
Department of the Treasury
Internal Revenue Service
Instructions for Form 8903
Domestic Production Activities Deduction
(Rev. December 2019)
Section references are to the Internal
share of the cooperative's DPAD to
include on Form 8903.
General Instructions
Revenue Code unless otherwise noted.
Purpose of Form
Future Developments
Married individuals filing a joint
income tax return figure the deduction
on one Form 8903 using the
Use Form 8903 to figure your
domestic production activities
deduction (DPAD).
For the latest information about
developments related to Form 8903
and its instructions, such as
applicable items of both spouses.
legislation enacted after they were
Your DPAD is generally 9% of the
Note. Unless you were allocated a
share of a cooperative's DPAD or you
are a member of an expanded
smaller of:
1. Your qualified production
activities income (QPAI), or
2. Your adjusted gross income for
an individual, estate, or trust (taxable
income for all other taxpayers) figured
without the DPAD.
Future revisions of Form 8903.
The IRS will revise the December
2018 version of Form 8903 only when
necessary. Continue to use the 2018
version of Form 8903 for tax years
beginning after 2017 until a new
revision is issued.
affiliated group (EAG), you won't be
allowed a DPAD unless you can enter
on Form 8903 a positive amount for all
three of the following.
Qualified production activities
•
income (QPAI).
Adjusted gross income for an
•
Reduced DPAD for oil-related
QPAI. A taxpayer with oil-related
QPAI also must reduce the DPAD by
3% of the least of the following
amounts.
individual, estate, or trust (taxable
income for all other taxpayers).
What's New
Domestic production activities de-
duction (DPAD). DPAD under
former section 199 has been repealed
for tax years beginning after 2017.
Taxpayers using Form 8903 to
Form W-2 wages you paid to your
•
employees. If you didn't pay any Form
W-2 wages (or have Form W-2 wages
allocated to you on a Schedule K-1),
you can't claim a DPAD.
Oil-related QPAI.
QPAI.
•
•
•
Adjusted gross income for an
compute DPAD for tax years, or items
arising from tax years, prior to repeal
should use the Instructions for Form
8903 dated December 2018.
individual, estate, or trust (taxable
income for all other taxpayers) figured
without DPAD.
For details, see the discussions of
these three items, later.
DPAD for income attributable to
domestic production activities af-
ter 2017. DPAD has been repealed
for tax years beginning after 2017.
Don’t use Form 8903 to claim DPAD
for 2018 or later years unless:
DPAD limited to wages paid. Your
DPAD generally can't be more than
50% of the Form W-2 wages you paid
to your employees that are properly
allocable to domestic production
gross receipts (including Form W-2
wages allocated to you on a
For specified agricultural or
horticultural cooperatives (specified
cooperatives), a deduction under
section 199A(g) for income
attributable to domestic production
activities is available for tax years
beginning after 2017. Specified
cooperatives may use Form 8903, as
applicable, to calculate the section
199A(g) deduction.
1. Your tax year began before
January 1, 2018,
Schedule K-1).
2. You are a shareholder in an S
corporation or partner in a partnership
and the entity has a tax year that
began before January 1, 2018,
3. You are a beneficiary of an
estate or trust and the estate or trust
has a tax year that began before
January 1, 2018,
4. You are a patron of an
agricultural or horticultural cooperative
with a tax year that began before
January 1, 2018.
Who Must File
DPAD for income attributable to
domestic production activities be-
fore 2018. Individuals, corporations,
cooperatives, estates, and trusts use
Form 8903 to figure their allowable
DPAD from certain trade or business
activities.
For further guidance, until final
regulations are published in the
Federal Register, taxpayers may
generally rely on the Proposed
Regulations (REG-118425-18),
published June 19, 2019, provided
the taxpayer applies the rules in their
entirety and in a consistent manner.
For purposes of the W-2 Wage
Limitation, also see Notice 2019-27,
2019-31 IRB, page 484 available at
Shareholders of S corporations and
partners include information provided
by the S corporation or partnership
when figuring their allowable DPAD.
Beneficiaries of an estate or trust
include information provided by the
estate or trust when figuring their
allowable DPAD. Patrons of certain
agricultural or horticultural
Specified cooperatives’ DPAD af-
ter 2017. For tax years beginning on
or after January 1, 2018, specified
agricultural or horticultural
cooperatives to which part I of
subchapter T applies may qualify for a
deduction under section 199A(g).
cooperatives may be allocated a
Dec 20, 2019
Cat. No. 39878Q
For agricultural or horticultural
cooperatives’ utilizing Form 8903 to
compute a deduction under section
199A(g), write “SPECIFIED
corporations and partnerships can
figure QPAI and Form W-2 wages at
An agricultural or horticultural
cooperative is an organization
the entity level and allocate and report described in section 1381 that is
these amounts to shareholders and
partners. See Qualified Production
W-2 Wages for more information.
engaged in:
COOPERATIVE DPAD” across the
top of Form 8903. The Form 8903
must be attached to the cooperative’s
return.
Manufacturing, producing, growing,
•
or extracting (MPGE) in whole or
significant part any agricultural or
horticultural product, or
All other S corporations and
partnerships need to provide each
shareholder or partner with
Marketing agricultural or
•
Definitions and Special
Rules
horticultural products that its patrons
have MPGE.
information the shareholder or partner
needs to figure the DPAD.
Agricultural or horticultural products
for this purpose include fertilizer,
diesel fuel, and other supplies used in
agricultural or horticultural production.
An organization engaged in marketing
agricultural or horticultural products is
treated as having MPGE in whole or in
significant part any qualifying
production property marketed by the
organization that its patrons have
MPGE.
Trade or business. QPAI and Form
W-2 wages are figured by only taking
into account items that are attributable
to the actual conduct of a trade or
business. An activity qualifies as a
trade or business if your primary
purpose for engaging in the activity is
for income or profit and you are
Film production. S corporation
shareholders or partners that own
20% or more (directly or indirectly) of
the capital interests in the S
corporation or the partnership are
treated as having engaged directly in
any film produced by the S
involved in the activity with continuity
and regularity. For example, a
corporation or partnership, and the S
corporation or partnership is treated
as having engaged directly in any film
produced by the S corporation
sporadic activity or a hobby doesn't
qualify as a trade or business.
Allocation of cooperative DPAD.
Qualified payments are the patronage
dividends and per-unit retain
shareholder or partner. See section
199(d)(1)(A)(iv) for more information.
Coordination with other deduc-
tions. Expenses that otherwise
would be taken into account for
purposes of figuring the DPAD are
only taken into account if and to the
extent the losses and deductions from
all of your activities aren't disallowed
by a provision of the Internal Revenue
Code, including the following.
allocations paid to patrons on which
the cooperative computed its DPAD.
A patron who receives a qualified
payment can be allocated any portion
of the DPAD allowed with respect to
the portion of the QPAI to which such
payment is attributable. The
Estates and trusts. Generally, an
estate or trust will figure its:
QPAI (which may be less than
•
zero), and
Form W-2 wages it paid to its
•
employees (including Form W-2
wages allocated to it on a
cooperative must identify the portion
of its DPAD allocated to a patron in a
written notice mailed to the patron no
later than the 15th day of the 9th
month following the close of the
cooperative's tax year. The qualified
payments and allocated DPAD will
also be reported to patrons that aren't
corporations on Form 1099-PATR,
Taxable Distributions Received From
Cooperatives.
Basis limits on a partner's share of
•
Schedule K-1).
partnership losses.
Basis limits on a shareholder's
These items are then allocated among
the estate or trust and its beneficiaries
based on the relative proportion of the
estate's or trust's distributable net
income (DNI) for the tax year that is
distributed or required to be
•
share of S corporation losses.
At-risk rules.
•
•
Passive activity rules.
If only a portion of your losses or
distributed to the beneficiary or
retained by the estate or trust. If the
estate or trust has no DNI for the tax
year, QPAI and Form W-2 wages are
allocated entirely to the estate or trust.
Although estates and trusts actually
allocate their QPAI and Form W-2
wages to beneficiaries as discussed
earlier, when completing Form 8903
they must reduce the amounts
reported on lines 8 and 18 to reflect
the portion of those amounts that
were allocated to beneficiaries as
QPAI or Form W-2 wages. For details,
deductions are allowed in the current
tax year, a proportionate share of the
losses or deductions that reflect
expenses allocated to your gross
receipts from qualified production
activities, after applying the provisions
discussed earlier, is taken into
Note. For purposes of section 199,
patrons of agricultural or horticultural
cooperatives can't include any
distributions of qualified payments
from the cooperative in the
account for purposes of figuring the
DPAD for the current tax year. If any
of the losses or deductions disallowed
for tax years beginning after 2004 are
allowed in a later tax year, a
computation of their DPAD.
Allocation of patronage and
nonpatronage income and
deductions. Cooperatives must
calculate the DPAD separately to
determine patronage and
proportionate share of the expenses
reflected in those losses or
deductions is taken into account in
figuring the DPAD in the later tax year.
nonpatronage income or losses for
purposes of determining unused
patronage or nonpatronage losses on
lines 12 and 13, respectively, of
Schedule G, Form 1120-C.
Agricultural and horticultural co-
operatives. Generally, an
A net operating loss under section
172 generally is figured without the
section 199 deduction.
agricultural or horticultural cooperative
can choose to allocate all, some, or
none of its allowable DPAD (but not
QPAI) to its patrons.
S corporations and partnerships.
The DPAD is applied at the
If you have only patronage income
and deductions, complete the Form
shareholder or partner level. Certain S
Instructions for Form 8903 (Rev. 12-2019)
-2-
8903 as described in the instructions.
However, if you have both patronage
and nonpatronage income and
completing Form 8903.
Expanded affiliated groups
(EAGs). All members of an EAG are
treated as a single corporation to
figure their DPAD. The DPAD is
allocated among the members of the
group in proportion to each member's
respective amount (if any) of QPAI.
8903.
can find Rev. Proc. 2011-42 on
page 318 of I.R.B. 2011-37 at
greases, and waxes, and residues
such as fuel oil.
Primary products from gas.
Primary products from gas are all gas
and associated hydrocarbon
Qualified Production
Activities Income (QPAI)
components from gas or oil wells,
whether recovered at the lease or
upon further processing, including
natural gas; condensates; liquefied
petroleum gases such as ethane,
propane, and butane; and liquid
products such as natural gasoline.
Your allowable DPAD generally can't
be more than 9% of your QPAI. If you
don't have QPAI, you generally aren't
allowed a DPAD. However, you don't
need QPAI to claim a DPAD you are
allocated as a patron of an agricultural
or horticultural cooperative.
See Temporary Regulations
section 1.927(a)-1T(g)(2) for
additional information.
Figuring QPAI. QPAI is the excess
An EAG is an affiliated group as
defined in section 1504(a)
determined:
(if any) of:
1. Domestic production gross
S corporations and partnerships.
S corporations and partnerships that
meet specific requirements can
choose to figure QPAI at the entity
level and allocate QPAI to
receipts (DPGR), over
By substituting "more than 50%" for
•
2. The sum of:
"at least 80%" each place it appears,
and
a. Cost of goods sold allocable to
DPGR, and
Without regard to paragraphs (2)
•
shareholders or partners. The
and (4) of section 1504(b).
b. Other expenses, losses, or
deductions (other than the DPAD)
which are properly allocable to DPGR.
shareholder or partner then combines
the allocated portion with QPAI from
other sources on Form 8903 to
A corporation's status as a member
of an EAG is determined on a daily
basis. Also, if a corporation joins or
leaves an EAG, its status as a
member of the EAG is determined at
the end of the day on which it joins or
leaves the EAG.
If all the capital and profits interests
of a partnership are owned by
members of a single EAG at all times
during the partnership's tax year, the
partnership and all members of the
group are treated as a single taxpayer
to figure their domestic production
gross receipts (DPGR) for that tax
year.
determine the DPAD. S corporations
or partnerships that aren't eligible to
figure QPAI at the entity level must
report each shareholder's or partner's
share of deductions, expenses, or
losses on Schedule K-1 with other
information the shareholder or partner
needs to figure their DPAD.
Oil-related QPAI. A taxpayer with
oil-related QPAI must reduce the
DPAD by 3% of the least of the
following amounts.
Oil-related QPAI.
QPAI.
•
•
•
Adjusted gross income for an
individual, estate, or trust (taxable
income for all other taxpayers) figured
without the DPAD.
QPAI from an estate or trust. An
estate or trust will figure its QPAI and
report each beneficiary's share on
Schedule K-1 (Form 1041).
Cooperatives. Cooperatives figure
QPAI without any deduction for
patronage dividends, per-unit retain
allocations, or nonpatronage
distributions under section 1382(b) or
(c).
Oil-related QPAI is QPAI
attributable to the production, refining,
processing, transportation, or
distribution of oil or gas, or any
primary product from oil or gas (as
used in section 927(a)(2)(C) before its
repeal).
Alternative minimum tax (AMT).
For taxpayers other than corporations,
the DPAD used to determine regular
tax is also used to determine
Costs related to transportation.
When figuring QPAI and oil-related
QPAI for tax years beginning after
2015, only 25% of properly allocated
costs related to the transportation of
oil are allocable to DPGR if the
taxpayer is in the trade or business of
refining crude oil and is not a major
integrated oil company (as defined in
section 167(h)(5)(B) without regard to
clause (iii)).
alternative minimum taxable income
(AMTI). Corporations use AMTI
(instead of taxable income) figured
without the DPAD to figure the
alternative minimum DPAD used to
determine AMTI.
Domestic Production Gross
Receipts (DPGR)
Using any reasonable method that is
satisfactory to the Secretary based on
the facts and circumstances, you
must determine whether gross
For details on how corporations
figure DPAD for AMT, see the
Instructions for Form 4626.
Statistical sampling. You are
generally allowed to use statistical
sampling for purposes of calculating
the DPAD. For details about
receipts qualify as DPGR on an
item-by-item basis (and not, for
example, on a division-by-division,
product line-by-product line, or
Primary products from oil.
Primary products from oil are oil and
all products derived from the
transaction-by-transaction basis);
however, see Regulations section
1.199-3(d)(2) for special rules and
Regulations section 1.199-(3)(d)(3)
for an exception. See Regulations
section 1.199-(3)(d)(4) for examples.
acceptable statistical sampling
methodologies, see Rev. Proc.
2007-35 and Rev. Proc. 2011-42. You
can find Rev. Proc. 2007-35 on
page 1349 of I.R.B. 2007-23 at
destructive distillation of oil, including
volatile products, light oils such as
motor fuel and kerosene, distillates
such as naphtha, lubricating oils,
DPGR activities. Generally, your
gross receipts (defined later) derived
Instructions for Form 8903 (Rev. 12-2019)
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from the following activities are
DPGR.
1. Construction of real property
you perform in the United States in
your construction trade or business.
States and over which the United
States has exclusive rights, in
accordance with international law,
with respect to the exploration and
exploitation of natural resources. The
United States does not include
possessions and territories of the
United States or the airspace or space
over the United States and these
areas.
EAG partnerships. A partnership is
an EAG partnership if a single EAG
owns all the interests in the capital
and profits of the partnership at all
times during the tax year. If the
requirements are met, the EAG
partnership and all members of the
EAG are treated as a single taxpayer
for purposes of determining the
amount of domestic production gross
receipts (DPGR).
2. Engineering or architectural
services you perform in the United
States in your engineering or
architectural services trade or
business for the construction of real
property in the United States.
Activities in Puerto Rico. For
purposes of determining DPGR, the
Special rules apply to the
3. Any lease, rental, license, sale,
exchange, or other disposition of the
following.
United States includes Puerto Rico for attribution of gross receipts (a) to a
a taxpayer who has gross receipts
from sources within Puerto Rico that
are subject to tax under sections 1 or
member of the EAG from the
disposition of property an EAG
partnership engaged in MPGE, and
a. Qualifying production property
you manufacture, produce, grow, or
extract in whole or in significant part in
the United States. See Qualifying
11, but only for the first 12 tax years of (b) to an EAG partnership from the
the taxpayer that begin after 2005 and disposition of property another EAG
before 2018.
partnership engaged in MPGE, both
of which are members of the same
EAG. See Regulations section
1.199-3(i)(8) for more information,
exceptions, and other rules.
Gross receipts. Your gross receipts
are receipts that are recognized under
your method of accounting for the tax
year. Gross receipts include the
following amounts from your trade or
business activities.
extracting, later, for details.
b. Any qualified film you produce.
c. Electricity, natural gas, or
potable water you produce in the
United States.
Qualifying Production Property
Total sales (net of returns and
•
The following are qualifying
allowances).
production property.
In general, gross receipts derived
from the following activities aren't
DPGR.
Amounts received for services, not
•
Tangible personal property.
Computer software.
•
•
•
including wages received as an
employee.
Sound recordings.
Activities not attributable to the
•
Income from investments and from
•
actual conduct of a trade or business.
The sale of food and beverages you
Tangible personal property.
Tangible personal property includes
any tangible property other than land,
buildings (including structural
incidental or outside sources
•
(including sales of business property).
prepare at a retail establishment.
Amounts received that are allocable
•
The lease, rental, or license of
•
to the payment of sales tax or other
similar state and local taxes if the tax
is legally imposed on you.
property between certain persons
treated as a single employer.
components), computer software,
sound recordings, qualified films,
electricity, natural gas, or potable
water. Tangible personal property
also includes any gas (other than
natural gas), chemical, and similar
property, such as steam, oxygen,
hydrogen, or nitrogen.
The lease, rental, license, sale,
•
exchange, or other disposition of land.
Gross receipts are generally not
The transmission or distribution of
•
reduced by the:
electricity, natural gas, or potable
water.
Cost of goods sold, or
•
•
Adjusted basis of property (other
Advertising and product-placement;
•
than capital assets) sold or otherwise
disposed of if such property is
described in section 1221(a)(1)
through (5).
however, see Regulations section
1.199-3(i)(5)(ii) for exceptions.
Machinery, printing presses,
transportation and office equipment,
refrigerators, grocery counters, testing
equipment, display racks and shelves,
and neon and other signs that are
contained in or attached to a building
constitute tangible personal property.
Customer and technical support,
•
telephone and other
Allocation of gross receipts. You
generally must allocate your gross
receipts between DPGR and
telecommunications services, online
services (including Internet access
services, online banking services, and
providing access to online electronic
books, newspapers, and journals),
and other similar services; however,
see Regulations section 1.199-3(i)(6)
(iii) for exceptions.
non-DPGR. Allocate gross receipts
using a reasonable method that
accurately identifies gross receipts
that are DPGR. However, if less than
5% of your gross receipts are
Note. Local law doesn't control
whether property is tangible personal
property.
non-DPGR, you can treat all of your
gross receipts as DPGR. Also, if less
than 5% of your gross receipts are
DPGR, you can treat all of your gross
receipts as non-DPGR.
See Regulations section 1.199-3(j)
Activities in the United States.
For purposes of determining DPGR,
the United States includes the 50
states, the District of Columbia, the
territorial waters of the United States,
and the seabed and subsoil of those
submarine areas that are adjacent to
the territorial waters of the United
(2) for more information.
Computer software. In general,
computer software includes the
following.
For details, see Regulations
Any program, routine, or sequence
•
section 1.199-1(d).
of machine-readable code that is
designed to cause a computer to
Instructions for Form 8903 (Rev. 12-2019)
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perform a desired function or set of
functions, and the documentation
required to describe or maintain that
program or routine. An electronic
book online or for download doesn't
constitute computer software.
then the medium is considered
tangible personal property.
extracting the property they receive as
a distribution from the partnership. For
purposes of section 199, a qualifying
in-kind partnership is a partnership
engaged in any of the following
activities.
Exception. Sound recordings
don't include the creation of
copyrighted material in a form other
than a sound recording, such as lyrics
or music composition.
Machine-readable code for (a)
The extraction, refining, or
•
•
video games or similar programs, (b)
equipment that is an integral part of
other property, and (c) typewriters,
calculators, adding and accounting
machines, copiers, duplicating
equipment, and similar equipment,
even if the program isn't designed to
operate on a computer as defined in
section 168(i)(2)(B).
processing of oil, natural gas (as
described in Regulations section
1.199-3(l)(2)), petrochemicals, or
products derived from oil, natural gas,
or petrochemicals, in whole or
significant part within the United
States.
See Regulations section 1.199-3(j)
(4) for more information.
Manufacturing, producing, grow-
ing, or extracting (MPGE). MPGE
generally include the following trade
or business activities.
The production or generation of
•
Activities related to manufacturing,
•
electricity in the United States.
producing, growing, extracting,
installing, developing, improving, and
creating qualifying production
property.
Computer programs of all classes,
The extraction and processing of
•
•
including operating systems,
executive systems, monitors,
compilers and translators, assembly
routines, utility programs, and
application programs.
minerals (as defined in Regulations
section 1.611-1(d)(5)) within the
United States.
Making qualifying production
•
Any other industry or activity
•
property (QPP) out of scrap, salvage,
or junk material, or from new or raw
material by processing, manipulating,
refining, or changing the form of an
article, or by combining or assembling
two or more articles.
designated as an industry or activity of
a qualifying in-kind partnership by
publication in the Internal Revenue
Bulletin.
Any incidental and ancillary rights
•
that are necessary for the acquisition
of the title to, the ownership of, or the
right to use computer software, and
that are used only in connection with
that specific software. These
For more information on qualifying
in-kind partnerships, see Regulations
sections 1.199-3(i)(7). For qualifying
in-kind partnerships engaged solely in
the extraction and processing of
minerals, see Rev. Rul. 2007-30 on
page 1277 of I.R.B. 2007-21 at
Cultivating soil, raising livestock,
•
fishing, and mining minerals.
incidental and ancillary rights aren't
included in the definition of a
Storage, handling, or other
•
processing activities (other than
transportation activities) in the United
States related to the sale, exchange,
or other disposition of agricultural
products, provided the products are
consumed in connection with, or
incorporated into, manufacturing,
producing, growing, or extracting
QPP, whether or not by the taxpayer.
trademark or trade name under
Regulations section 1.197-2(b)(10)(i).
Exception. Computer software
doesn't include any data or
information base unless the data or
information base is in the public
domain and is incidental to a
computer program.
Qualified Film
A qualified film is any motion picture
film, video tape, or live or delayed
television programming for which 50%
or more of the total compensation
required to produce the film is paid for
services performed by actors,
Generally, the packaging,
Example. If a word processing
program includes a dictionary feature
that may be used to spell-check a
document, then the entire program
(including the dictionary feature) is a
computer software program
repackaging, labeling, or minor
assembly of QPP does not qualify as
an MPGE activity unless you engage
in another MPGE activity with respect
to that QPP. Furthermore, the
production personnel, directors, and
producers in the United States.
installation of qualifying production
property does not qualify as an MPGE
activity unless you MPGE the
A qualified film includes the
copyrights, trademarks, or other
intangibles related to the film. Also, a
DPAD can be taken for the production
of a qualified film regardless of the
methods and means by which the film
is distributed.
regardless of the form in which the
dictionary feature is maintained or
stored.
qualifying production property being
installed and you have the benefits
and burdens of ownership of the QPP
under federal income tax principles
during the installation period.
See Regulations section 1.199-3(j)
(3) for more information.
Sound recordings. Sound
recordings include any works that
result from the fixation of a series of
See section 199(c)(6) and
Regulations section 1.199-3(k) for
more information. For special rules
related to S corporations,
For details, see Regulations
musical, spoken, or other sounds. The section 1.199-3(e). Your MPGE of
definition of sound recordings is
limited to the master copy of the
recordings (or other copy from which
the holder is licensed to make and
produce copies), and if the medium
(such as compact discs, tapes, or
other phonorecordings) in which the
sounds may be embodied is tangible,
QPP must be in whole or in significant
part within the United States. See
Regulations section 1.199-3(f) and
(g).
partnerships, S corporation
shareholders, and partners
participating in the production of films,
Qualifying in-kind partnerships.
In general, partners of qualifying
corporations and partnerships, earlier.
in-kind partnerships are treated as
manufacturing, producing, growing, or
Instructions for Form 8903 (Rev. 12-2019)
-5-
S corporations and
loss deduction. You have $1,000 total
gross receipts and $750 DPGR. Your
DPGR equal 75% of your total gross
receipts. Under the small business
simplified overall method, you
subtract $300 ($400 × 0.75) of your
total cost of goods sold and other
trade or business deductions,
Cost of Goods Sold
partnerships. S corporations and
partnerships that meet specific
requirements can choose to figure
QPAI at the entity level and allocate
the QPAI to shareholders or partners.
S corporations or partnerships that
aren't eligible to figure QPAI under
those rules must report each
When figuring QPAI, cost of goods
sold includes the:
Cost of goods sold to customers,
•
and
Adjusted basis of non-inventory
•
property you sold or otherwise
disposed of in your trade or business.
expenses, or losses from your DPGR
to figure your QPAI, which is $450
($750 - $300).
Allocation of cost of goods sold.
Generally, you must allocate your cost
of goods sold between DPGR and
non-DPGR using a reasonable
method. If you use a method to
allocate gross receipts between
DPGR and non-DPGR, the use of a
different method to allocate cost of
goods sold won't be considered
reasonable, unless it is more
shareholder's or partner's share of its
deductions, expenses, or losses on
Schedule K-1 with other information
the shareholder or partner needs to
figure their DPAD.
Average annual gross receipts.
For this purpose, your average annual
gross receipts are your average
annual gross receipts for the
Estates and trusts. An estate or
trust allocates directly attributable
trade or business deductions,
preceding 3 tax years. If your
business hasn't been in existence for
3 tax years, base your average on the
period it has existed. Include any
short tax years by annualizing the
short tax year's gross receipts by (a)
multiplying the gross receipts for the
short period by 12, and (b) dividing
the result by the number of months in
the short period.
expenses, or losses between DPGR
and non-DPGR under Regulations
section 1.652(b)-3. An estate or trust
that is eligible must use the simplified
deduction method to allocate
accurate. However, if you qualify to
use the small business simplified
overall method, you can use it to
apportion both cost of goods sold and
other deductions, expenses, and
losses between DPGR and
indirectly attributable trade or
business deductions, expenses, or
losses between DPGR and
non-DPGR. For more information
about this allocation method, see
Method, later.
non-DPGR. Otherwise, the estate or
trust uses the section 861 method to
allocate these indirect items.
Estates and trusts. Estates and
trusts can't use the small business
simplified overall method.
For details about allocating cost of
goods sold, see Regulations section
1.199-4.
S corporations and partnerships.
An S corporation or partnership (other
than a qualifying in-kind partnership or
expanded affiliated group partnership)
can choose to use the small business
simplified overall method to figure
QPAI at the entity level and allocate
that QPAI to shareholders or partners
if it meets the requirements of an
eligible small pass-through entity. A
shareholder or partner who is
Small Business Simplified Overall
Method
You generally can use the small
business simplified overall method to
apportion cost of goods sold and
other deductions, expenses, and
losses between DPGR and
Other Deductions, Expenses, or
Losses
When figuring QPAI, other
deductions, expenses, or losses
include all deductions, expenses, or
losses from a trade or business other
than cost of goods sold and employee
business expenses.
non-DPGR if you meet any of the
following tests.
You are engaged in the trade or
•
business of farming and aren't
required to use the accrual method of
accounting (see section 447).
allocated QPAI from an eligible small
pass-through entity must report that
QPAI on line 7.
Allocation and apportionment of
other deductions, expenses, or
losses. You must generally use one
of the following three methods to
allocate and apportion other trade or
business deductions, expenses, or
losses between DPGR and
Your average annual gross receipts
•
For a definition of a qualifying
in-kind partnership, see Regulations
section 1.199-3(i)(7). For a definition
of an expanded affiliated group
partnership, see Regulations section
1.199-3(i)(8).
(defined below) are $5 million or less.
You are eligible to use the cash
•
method of accounting under Rev.
Proc. 2002-28. You can find Rev.
Proc. 2002-28 on page 815 of I.R.B.
2002-18 at IRS.gov/pub/irs-irbs/
non-DPGR.
Small business simplified overall
•
An S corporation or partnership is
an eligible small pass-through entity if
it meets each of the following
method. (You must qualify to use this
method.)
Under the small business simplified
overall method, your total cost of
goods sold and other deductions,
expenses, and losses are ratably
apportioned between DPGR and
non-DPGR based on relative gross
receipts.
Simplified deduction method. (You
•
requirements for the current tax year.
must qualify to use this method.)
It satisfies one of the following
•
Section 861 method.
•
requirements: (a) it has average
annual gross receipts for the 3 tax
years preceding the current tax year
of $5 million or less, (b) it is engaged
in the trade or business of farming and
isn't required to use the accrual
method of accounting, or (c) it is
eligible to use the cash method of
However, don't allocate and
apportion a net operating loss
deduction or deductions not
attributable to the conduct of a trade
or business to DPGR under any of the
methods.
Example. Your total cost of goods
sold and other trade or business
deductions, expenses, or losses are
$400 and don't include a net operating
Instructions for Form 8903 (Rev. 12-2019)
-6-
accounting under Rev. Proc. 2002-28
(that is, it has average annual gross
0.60) of your total other trade or
Expanded affiliated groups. For
additional rules that apply to
business deductions, expenses, or
receipts of $10 million or less and isn't losses from your DPGR to figure your
expanded affiliated groups, see
Regulations section 1.199-4(e)(4).
excluded from using the cash method
under section 448 of the Internal
Revenue Code).
QPAI, which is $120 ($600 - $240 -
$240).
Oil-related production activities. If
you have oil-related QPAI, and you
choose to use the simplified
S corporations and partnerships.
An S corporation or partnership (other
than a qualifying in-kind partnership or
expanded affiliated group partnership)
can choose to use the simplified
deduction method to figure QPAI at
the entity level and allocate that QPAI
to shareholders or partners if it meets
the requirements of an eligible widely
held pass-through entity. A
It has total cost of goods sold and
•
deductions (excluding the net
operating loss deduction) added
together of $5 million or less.
deduction method, you must allocate
part of these costs to DPGR from
oil-related production activities to
determine oil-related QPAI. See
Line 3, later.
It has DPGR.
•
If a partnership, it doesn't have a
•
partner that is an ineligible partnership
(qualifying in-kind partnerships or
expanded affiliated group
partnerships).
Section 861 Method
You don't have to meet any tests to
use the section 861 method. Under
the section 861 method, you generally
must apply the rules of the section
861 regulations to allocate and
apportion other trade or business
deductions, expenses, or losses
between DPGR and non-DPGR.
Section 199 is treated as an
shareholder or partner who is
Expanded affiliated groups. For
additional rules that apply to
allocated QPAI from an eligible widely
held pass-through entity must report
that QPAI on line 7.
expanded affiliated groups, see
Regulations section 1.199-4(f)(4).
For a definition of a qualifying
in-kind partnership, see Regulations
section 1.199-3(i)(7). For a definition
of an expanded affiliated group
partnership, see Regulations section
1.199-3(i)(8).
An S corporation or partnership is
an eligible widely held pass-through
entity if it meets each of the following
requirements for its current tax year.
Oil-related production activities. If
you have oil-related QPAI, and you
choose to use the small business
simplified overall method, you must
allocate part of these costs to DPGR
from oil-related production activities to
determine oil-related QPAI. See
Line 4, later.
“operative section” described in
Regulations section 1.861-8(f).
For details, see Regulations
section 1.199-4(d).
For details about the small
For guidance on automatic
approval to change certain elections
relating to the apportionment of
interest expense and research and
experimentation expenditures, see
Rev. Proc. 2006-42. You can find
Rev. Proc. 2006-42 on page 931 of
I.R.B. 2006-47 at IRS.gov/pub/irs-irbs/
S corporations. An S corporation
can't use the section 861 method to
figure QPAI. Unless it is eligible to use
the small business simplified overall
method or simplified deduction
method, an S corporation must report
each shareholder's share of its
deductions, expenses, or losses on
Schedule K-1 (Form 1120S) that the
shareholder needs to figure their
DPAD.
Either of the two tests discussed
•
business simplified overall method,
see Regulations section 1.199-4(f).
earlier under Simplified Deduction
It has total cost of goods sold and
•
Simplified Deduction Method
deductions added together of $100
million or less.
You generally can use the simplified
deduction method to apportion other
deductions, expenses, and losses
(but not cost of goods sold) between
DPGR and non-DPGR if you meet
either of the following tests.
It has DPGR.
•
On every day during the current tax
•
year, all of its shareholders or partners
are individuals, estates, or trusts
described (or treated as described) in
section 1361(c)(2).
Your total trade or business assets
•
at the end of your tax year are $10
million or less.
On every day during the current tax
•
year, no shareholder or partner owns,
alone or combined with the ownership
interests of all related persons, more
than 10% of (a) total shares of the S
corporation or (b) the profits or capital
interests in the partnership.
Your average annual gross receipts
•
(defined above) are $100 million or
less.
Under the simplified deduction
method, your other trade or business
deductions, expenses, or losses are
ratably apportioned between DPGR
and non-DPGR based on relative
gross receipts.
Estates and trusts. If eligible by
meeting one of the two tests
Partnerships. A partnership (other
than a qualifying in-kind partnership or
expanded affiliated group partnership)
can choose to use the 861 method to
figure QPAI at the entity level and
allocate that QPAI to qualifying
partners (defined later) if it meets the
requirements of an eligible 861
partnership. A partner who is
described earlier, an estate or trust
must use the simplified deduction
method to allocate its indirectly
attributable trade or business
deductions, expenses, or losses
between DPGR and non-DPGR. All
estates and trusts must allocate
directly attributable deductions,
expenses, or losses between DPGR
and non-DPGR under Regulations
section 1.652(b)-3.
Example. Your total other trade or
business deductions, expenses, or
losses are $400 and don't include a
net operating loss. You have $240 of
cost of goods sold allocable to DPGR.
You have $1,000 total gross receipts
and $600 DPGR. Your DPGR equal
60% of your total gross receipts.
Under the simplified deduction
allocated QPAI from an eligible 861
partnership must report that QPAI on
line 7.
method, you subtract $240 ($400 ×
Instructions for Form 8903 (Rev. 12-2019)
-7-
For a definition of a qualifying
in-kind partnership, see Regulations
section 1.199-3(i)(7). For a definition
of an expanded affiliated group
partnership, see Regulations section
1.199-3(i)(8).
wages you paid to your employees
that are properly allocable to DPGR
(including Form W-2 wages allocated
to you on a Schedule K-1). If you
didn't pay Form W-2 wages, you
generally aren't allowed a DPAD.
However, you don't need Form W-2
wages to claim a DPAD you are
allocated as a:
Estates and trusts. An estate or
trust that can't use the simplified
deduction method must use the
section 861 method to allocate and
apportion its indirectly attributable
trade or business deductions,
An eligible 861 partnership must
expenses, or losses between DPGR
meet the following requirements for its and non-DPGR. All estates and trusts
current tax year.
It has at least 100 partners on any
must allocate directly attributable
deductions, expenses, or losses
between DPGR and non-DPGR under
Regulations section 1.652(b)-3.
Oil-related production activities. If
you have oil-related QPAI, apply the
rules of section 861 to determine the
amount of other trade or business
deductions, expenses, or losses to
deduct for purposes of determining
oil-related QPAI.
Patron of an agricultural or
•
•
horticultural cooperative, or
day during the partnership's tax year.
Member of an expanded affiliated
•
At least 70% of the partnership is
•
group.
owned, at all times during its tax year,
by qualifying partners (defined next).
Note. When figuring your DPAD, the
limit equal to 50% of Form W-2 wages
is based only on Form W-2 wages
properly allocable to DPGR.
Form W-2 wages from an S corpo-
ration or partnership. S
It has DPGR.
•
Qualifying partner. A qualifying
partner is a partner that, on each day
during the partnership's tax year that
the partner owns an interest in the
partnership:
corporations and partnerships that
meet specific requirements can
choose to figure Form W-2 wages at
the entity level and report the
allocated portion of Form W-2 wages
on Schedule K-1 to the S corporation
shareholder or partner who then
combines the allocated portion with
Form W-2 wages from other sources
on Form 8903 to determine the
DPAD.
Adjusted Gross or Taxable
Income
Is not a general partner or a
•
managing member of a partnership
organized as a limited liability
company,
Your allowable DPAD generally can't
be more than 9% of your adjusted
gross income if you are an individual,
estate, or trust (taxable income for all
other taxpayers) figured without the
DPAD. If you don't have adjusted
gross or taxable income, you
Doesn't materially participate
•
(discussed later) in the activities of the
partnership,
Doesn't hold, alone or combined
•
with the interests of all related
persons (defined next), 5% or more of
the profits or capital interests in the
partnership,
generally aren't allowed a DPAD.
If the S corporation or partnership
Note. Although patrons without
adjusted gross or taxable income can
claim a DPAD, the DPAD can't create
or increase a net operating loss under
section 172(d). However, you don't
need taxable income to claim a DPAD
you are allocated as a member of an
Expanded Affiliated Group (EAG), and
the DPAD can create or increase a
net operating loss under Regulations
section 1.199-7(c)(2).
Agricultural and horticultural co-
operatives. For this purpose, figure
taxable income without taking into
account any allowable deduction for
patronage dividends, per-unit retain
allocations, or nonpatronage
distributions.
meets the requirements to be
Is not an ineligible entity (qualifying
•
classified as one of the eligible entities
listed below, it can figure Form W-2
wages at the entity level and allocate
Form W-2 wages to S corporation
shareholders or partners.
in-kind partnership or expanded
affiliated group partnership).
Related persons. For purposes of
determining whether a partner is a
qualifying partner, persons are related
if they meet the requirements of
sections 267(b) or 707(b),
Eligible small pass-through entity.
•
under Small Business Simplified
Overall Method, earlier, for the
requirements.
disregarding sections 267(e)(1) and
(f)(1)(A).
Eligible widely held pass-through
•
Material participation. A
qualifying partner can't materially
participate in the activities of the
partnership. See section 5.05 of Rev.
Proc. 2007-34 for the definition of
material participation.
entity. See S corporations and
Deduction Method, earlier, for the
requirements.
Eligible 861 partnership. See
•
Non-qualifying partners. An
eligible 861 partnership can't allocate
QPAI to non-qualifying partners (see
Qualifying partner, earlier). Instead,
the partnership must report each
non-qualifying partner's share of
deductions, expenses, or losses on
Schedule K-1 that the partner needs
to figure their DPAD. The partnership
items allocated to non-qualifying
partners must be excluded for
purposes of figuring QPAI at the
partnership level.
Method, earlier, for the requirements.
later, to figure adjusted gross income.
Form W-2 wages from an estate or
trust. An estate or trust generally will
figure its Form W-2 wages and
apportion them between the
Unrelated business taxable in-
come (UBTI). The allowable DPAD
of an organization taxed on its UBTI
under section 511 generally can't be
more than 9% of its UBTI figured
without the DPAD.
beneficiary and the fiduciary (and
among the beneficiaries) and report
each beneficiary's share on
Schedule K-1 (Form 1041).
Form W-2 Wages
Form W-2 wages for services per-
formed in Puerto Rico. Taxpayers
that determine DPGR under section
Your allowable DPAD generally can't
be more than 50% of the Form W-2
Instructions for Form 8903 (Rev. 12-2019)
-8-
199(d)(8)(A), figure Form W-2 wages
by including wages paid for services
performed in Puerto Rico without
regard to section 3401(a)(8), but only
during the first 12 tax years of the
taxpayer that begin after 2005 and
before 2018.
tax year are treated as W-2 wages for
that short tax year.
Acquisition or disposition of a
trade or business. If you acquired or
disposed of a trade or business that
causes you and another employer to
pay W-2 wages to employees of the
Tracking wages method. Under the
tracking wages method, Form W-2
wages are figured as follows.
1. Add the amounts reported in
box 1 of the relevant Forms W-2 that
are also wages for federal income tax
withholding purposes.
2. Add any amounts reported in
box 1 of the relevant Forms W-2 that
are both:
Form W-2 wages paid to produce a acquired or disposed of trade or
qualified film. Form W-2 wages
include compensation for services
performed in the United States by
actors, production personnel,
business during the calendar year,
then the W-2 wages for the calendar
year of the acquisition or disposition
are allocated between each employer
based on the period that the
a. Wages for federal income tax
withholding purposes, and
directors, and producers to produce a
earlier, for more information.
b. Supplemental unemployment
compensation benefits.
employees of the acquired or
disposed of trade or business were
employed by each employer. If you
have a short tax year that doesn’t
include a calendar year ending within
your short tax year, see Short tax
year, earlier.
3. Subtract (2) from (1).
Figuring Form W-2 Wages Used
To Figure the 50% Limit
4. Add together any amounts
reported in box 12 of the relevant
Forms W-2 that are properly coded D,
E, F, G, or S.
You figure Form W-2 wages used to
figure the 50% limit in two steps. First,
you must determine the amount of
wages to classify as Form W-2 wages
under Regulations section 1.199-2(e)
(1). Second, you must figure Form
W-2 wages that are properly allocable
to DPGR.
Non-duplication rule. Amounts that
are treated as Form W-2 wages for a
tax year under any method can't be
treated as Form W-2 wages for any
other tax year. Also, an amount can't
be treated as Form W-2 wages by
more than one taxpayer.
Unmodified box method. Under the
unmodified box method, Form W-2
wages are the smaller of:
1. The sum of the amounts
reported in box 1 of the relevant
Forms W-2, or
2. The sum of the amounts
reported in box 5 of the relevant
Forms W-2.
5. Add (3) and (4).
Step 2. Form W-2 Wages
Allocable to DPGR
After you calculate Form W-2 wages,
as discussed in Step 1, you must
figure Form W-2 wages that are
properly allocable to DPGR. You
report the Form W-2 wages that are
properly allocable to DPGR on line 16
of Form 8903.
Step 1. Figuring Form W-2 Wages
You can use one of the following three
methods to figure your Form W-2
wages.
Unmodified box method.
Modified box 1 method.
Tracking wages method.
•
•
•
You can figure Form W-2 wages
that are properly allocable to DPGR
under one of the following methods.
After you figure Form W-2 wages,
Small business simplified overall
•
Form W-2 wages to report on line 16
of Form 8903.
method safe harbor.
Modified box 1 method. Under the
modified box 1 method, Form W-2
wages are figured as follows.
Wage expense safe harbor.
Any other reasonable method
•
•
Relevant Forms W-2. To figure your
Form W-2 wages, generally use the
sum of the amounts you properly
report for each employee on Form
W-2, Wage and Tax Statement, for
the calendar year ending with or
within your tax year. However, don't
use any amounts reported on a Form
W-2 filed with the Social Security
Administration more than 60 days
after its due date (including
based on all the facts and
circumstances.
1. Add the amounts reported in
box 1 of the relevant Forms W-2.
Small business simplified overall
method safe harbor. If you use the
small business simplified overall
method to allocate costs between
DPGR and non-DPGR (see Small
earlier), you can use the small
2. Add all the amounts described
below and included in box 1 of the
relevant Forms W-2.
a. Amounts not considered wages
for federal income tax withholding
purposes.
business simplified overall method
safe harbor to determine the amount
of Form W-2 wages allocable to
DPGR. Under this safe harbor
b. Supplemental unemployment
extensions).
compensation benefits.
Short tax year. If you have a short
tax year, you generally will use the
sum of the amounts you properly
report for each employee on Form
W-2 for the calendar year ending with
or within that short tax year. However,
if you have a short tax year that
c. Sick pay or annuity payments
from which the recipient requested
federal income tax withholding.
method, the amount of Form W-2
wages that is properly allocable to
DPGR equals the proportion of DPGR
to total gross receipts.
3. Subtract (2) from (1).
4. Add together any amounts
reported in box 12 of the relevant
Forms W-2 that are properly coded D,
E, F, G, or S.
Wage expense safe harbor. If you
are using either the section 861
method of cost allocation under
Regulations section 1.199-4(d) or the
simplified deduction method under
doesn't include a calendar year
ending within that short tax year, then
wages you properly report on Form
W-2 which you paid during the short
5. Add (3) and (4).
Instructions for Form 8903 (Rev. 12-2019)
-9-
Regulations section 1.199-4(e), you
determine the amount of wages
properly allocable to DPGR by
multiplying the amount of wages for
the tax year by the ratio of your wage
expense included in calculating QPAI
for the tax year to your total wage
expense used in calculating your
taxable income (or adjusted gross
income) for the tax year without
regard to any wage expenses
disallowed by sections 465, 469,
704(d), or 1366(d).
If you use the section 861 method
or the simplified deduction method,
you must use the same expense
allocation and apportionment
methods that you use to determine
QPAI to allocate and apportion wage
expense for purposes of the safe
harbor.
activities) on lines 1 through 10,
column (b).
line 3, column (b), you must make an
additional calculation to determine the
amount to report on line 3, column (a).
Multiply the amount reported on line 3,
column (b), by the ratio of oil-related
DPGR reported on line 1, column (a),
divided by DPGR from all activities
reported on line 1, column (b). Enter
the result on line 3, column (a). Don't
reduce the amount reported on line 3,
column (b), by this amount.
Line 1
Domestic Production
Gross Receipts (DPGR)
Enter your DPGR (defined earlier in
the General Instructions under
Receipts).
If you use the section 861 method,
apply the rules of section 861 to
determine the amount to report on
line 3, column (a).
Line 2
Allocable Cost of Goods
Sold
Enter your cost of goods sold
allocable to DPGR on line 2 unless
you are using the small business
simplified overall method. If you are
using the small business simplified
overall method, skip line 2, and go to
Line 4
Small Business Simplified
Overall Method
Enter the amount of cost of goods
sold and other deductions or losses
you ratably apportion to DPGR using
the small business simplified overall
method.
Wage expense included in cost
of goods sold. When figuring the
ratio of your wage expense included
in calculating QPAI for the tax year to
your total wage expense used in
calculating your adjusted gross
For more information about
allocating costs of goods sold, see
Cost of Goods Sold, earlier, in the
General Instructions. See Small
earlier in the General Instructions, for
more information about using this
method to allocate cost of goods sold
and other deductions or losses to
DPGR.
Oil-related production activities. If
you use the small business simplified
overall method to calculate the cost of
goods sold and other deductions,
expenses, and losses reported on
line 4, column (b), you must make an
additional calculation to determine the
amount to report on line 4, column (a).
Multiply the amount reported on line 4,
column (b), by the ratio of oil-related
DPGR reported on line 1, column (a),
divided by DPGR from all activities
reported on line 1, column (b). Enter
the amount on line 4, column (a).
income or taxable income (as the
case may be) for the tax year,
determine the wage expense included
in cost of goods sold using any
reasonable method based on all of the
facts and circumstances. For
Line 3
example, it may be reasonable to use
(a) the amount of direct labor included
in cost of goods sold or (b) section
263A labor costs (as defined in
Allocable Deductions and
Losses
Enter your other deductions or losses
properly allocable to DPGR on line 3
unless you are using the small
business simplified overall method. If
you are using the small business
simplified overall method, skip line 3,
Regulations section 1.263A-1(h)(4)
(ii)) included in cost of goods sold.
Don't reduce the amount reported on
line 4, column (b), by this amount.
More information. For more
information on figuring your Form W-2
wages, see Regulations section
1.199-2 and Rev. Proc. 2006-47. You
can find Rev. Proc. 2006-47 on
page 869 of I.R.B. 2006-45 at
Line 7
Beneficiaries of estates and trusts,
partners, and S corporation
If you are using the simplified
deduction method, enter on line 3 the
other deductions or losses you ratably
apportion to DPGR. See Simplified
Deduction Method, earlier in the
General Instructions, for more
shareholders report the QPAI
distributed from estates or trusts, and
certain partnerships or S corporations
on line 7. The QPAI should be
For more information on figuring
Form W-2 wages properly allocable to
DPGR, see Regulations section
1.199-2(e)(2).
reported to you on Schedule K-1 for
Forms 1041, 1065, or 1120S. See the
related Schedule K-1 and its
information about this method.
If you are using the section 861
method, enter on line 3 the other
deductions or losses you allocate or
apportion to DPGR. See Section 861
Method, earlier in the General
Instructions, for more information
about this method.
instructions for more information.
Specific Instructions
Complete lines 1 through 10,
Line 9
column (a), only if you have
Estates and trusts must use
!
CAUTION
oil-related production
Regulations section 1.652(b)-3 to
allocate QPAI to beneficiaries if DNI is
distributed or required to be
activities. All others, do not complete
lines 1 through 9, column (a), and
enter zero on line 10a.
distributed to beneficiaries. Report the
amount of QPAI allocated to
Oil-related production activities. If
you use the simplified deduction
method to calculate the other
beneficiaries on line 9. See Estates
Enter amounts for all activities
(including oil-related production
deductions or losses reported on
Instructions for Form 8903 (Rev. 12-2019)
-10-
and Special Rules.
Note. If you have extraterritorial
income (ETI), figure taxable income
without regard to any claimed ETI
exclusions.
and Special Rules.
Line 10a Oil-Related
Qualified Production
Activities Income
Line 24
Expanded Affiliated Group
Allocation
See Regulations section 1.199-1(b)
(1) for more information.
Add lines 1 through 9, column (a), to
determine oil-related QPAI. If you
don't have oil-related QPAI, don't
complete lines 1 through 9, column
(a), and enter zero on line 10a.
These instructions explain how
expanded affiliated groups (EAGs)
(defined earlier under Definitions and
Special Rules) figure and report the
DPAD. Certain members of an EAG
may not be required to complete the
entire Form 8903. See How To
Report, later.
Line 14a
If you have oil-related qualified
production income, use line 14a to
determine the least of the following
amounts.
Oil-related QPAI—line 10a,
QPAI—line 10b, or
•
•
•
Line 11
Income Limitation
Adjusted gross income for an
Computation of the EAG's
DPAD
Individuals. Enter your adjusted
gross income from line 7 of Form
1040 figured without the DPAD.
individual, estate, or trust (taxable
income for all other
taxpayers)—line 11.
In general, the DPAD for an EAG is
determined by aggregating each
member's taxable income or loss,
QPAI, and Form W-2 wages. A
member's QPAI may be positive or
negative. Also, a member's taxable
income or loss and QPAI are
Olympic and Paralympic medals
and USOC prize money. For
purposes of figuring your DPAD, your
adjusted gross income doesn't
include the value of any medal
awarded in, or any prize money
received from the United States
Olympic Committee on account of
competition in the Olympic Games or
Paralympic Games. If line 7 of your
Form 1040 includes these amounts,
then reduce your adjusted gross
income by them before entering it on
line 11.
All others, enter zero on line 14a.
Line 14b Reduction for
Oil-Related Qualified
Production Activities
Income
determined under the member's
method of accounting.
If you have oil-related qualified
production income, use line 14b to
reduce your DPAD by 3% of the
amount reported on line 14a.
Members with different tax years.
If members of an EAG have different
tax years, in determining the DPAD of
a member, the reporting member
must take into account the taxable
income or loss, QPAI, and Form W-2
wages of each group member that are
both:
All others, enter zero on line 14b.
Line 16
Corporations. Enter your taxable
income from the applicable line of
your tax return (for example, line 30 of
Form 1120) figured without the DPAD.
Form W-2 Wages
Attributable to the period that the
•
Enter your Form W-2 wages that are
properly allocable to DPGR
member of the EAG and the reporting
member are both members of the
EAG, and
(discussed earlier under Form W-2
Wages). Don't include Form W-2
wages you must report on line 17.
later.
Taken into account in a tax year
•
that ends with or within the tax year of
the reporting member with respect to
which the DPAD is figured.
Agricultural and horticultural co-
operatives. Enter your taxable
income figured without the DPAD or
the deductions for patronage
Line 17
Beneficiaries of estates and trusts,
partners, and S corporation
For an example that explains the
above requirements, see Regulations
section 1.199-7.
Net operating losses. The net
operating loss (NOL) of a member of
an EAG that is used in the
dividends, per-unit retain allocations,
and nonpatronage distributions under
section 1382(b) or (c).
shareholders report the Form W-2
wages distributed from estates or
trusts, and certain partnerships or S
corporations on line 17. The Form
W-2 wages should be reported to you
on the Schedule K-1 for Forms 1041,
1065, or 1120S. See the related
Schedule K-1 and its instructions for
more information.
Estates and trusts. Enter your
adjusted gross income figured without
the DPAD. See the Instructions for
Form 1041 to figure adjusted gross
income. Use the method discussed
under How to figure AGI for estates
and trusts, under Line 15a–Other
Deductions.
Unrelated business taxable in-
come (UBTI). An organization taxed
on its UBTI under section 511 enters
its UBTI from line 38 of Form 990-T
figured without the DPAD.
computation of the EAG's taxable
income isn't treated as an NOL
carryback or carryover to determine
the taxable income limitation in a prior
or subsequent year for purposes of
section 199(a)(1)(B). See Regulations
section 1.199-7(b)(4) for more
information.
Line 19
Estates and trusts must use
Regulations section 1.652(b)-3 to
allocate Form W-2 wages to
Allocation of the DPAD to
Members of the EAG
The EAG's DPAD is allocated among
members of the EAG based on the
ratio of each member's QPAI to the
beneficiaries if DNI is distributed or
required to be distributed to
beneficiaries. Report the amount of
the Form W-2 wages allocated to
beneficiaries on line 19. See Estates
Instructions for Form 8903 (Rev. 12-2019)
-11-
total QPAI of the EAG. The allocation
is made regardless of whether the
EAG member has taxable income or
loss or Form W-2 wages for the tax
year. If a member has negative QPAI,
method, a consolidated group
determines its QPAI by reference to
its members' DPGR, non-DPGR, cost
of goods sold, and all other
consolidated group completes lines 1
through 25 for the group. If the EAG is
comprised of more than just the
members of a single consolidated
group, the common parent files a
Form 8903 for the consolidated group
as either the reporting member or as
an EAG member other than the
reporting member, whichever is
appropriate. In all events, the common
parent attaches a schedule that
shows the amount of the consolidated
group's DPAD allocated to each
member of the consolidated group,
and how the allocated amount was
calculated.
deductions, expenses, or losses,
that member's QPAI is treated as zero determined on a consolidated basis.
for purposes of the allocation.
How To Report
All members of an EAG are treated as
a single corporation for purposes of
Consolidated Groups
Under section 199, a consolidated
group is treated as a single member of determining the DPAD. However, the
the EAG. If all members of an EAG
are members of the same
DPAD is allocated to each member.
EAG reporting member. The EAG
chooses a reporting member from
amongst all members of the EAG with
the same tax year to figure the DPAD
for all EAG members (computing
members). The reporting member
completes lines 10a through 16 and
lines 18 through 22 of the Form 8903
for the group.
consolidated group, the DPAD of the
consolidated group is determined
based on the consolidated taxable
income or loss, QPAI, and Form W-2
wages of the group and not the
separate taxable income or loss,
QPAI, and Form W-2 wages of its
members. The consolidated group will
generally file only one Form 8903. For
details, see Regulations section
1.199-7.
Line 25
Domestic Production
Activities Deduction
Combine lines 22 through 24 and
enter the result on line 25. For Form
1040 returns filed after tax year 2017,
include the result from line 25 of Form
8903 on Schedule 1 (Form 1040),
line 36. For Form 1120 returns filed
after tax year 2017, enter the result
from line 25 of Form 8903 on line 26,
Other deductions.
The reporting member also does
the following.
1. Enters the portion of the
deduction allocated to the other
members of the EAG (including
non-computing members) as a
negative number on line 24.
If an EAG includes both
consolidated and non-consolidated
members, the consolidated (not
separate) taxable income or loss,
QPAI, and Form W-2 wages of the
consolidated group are aggregated
with the taxable income or loss, QPAI,
and Form W-2 wages of the
2. Completes lines 23 and 25.
For tax years beginning after
December 31, 2017, additional
guidance under section 199A(g) is
pending.
3. Attaches a schedule showing
how the reporting member figured its
own QPAI.
non-consolidated group members to
determine the DPAD. For details, see
Regulations section 1.199-7(d)(4).
4. Attaches a schedule that shows
Agricultural and Horticultural
how the DPAD was figured for the
A consolidated group's DPAD (or
the DPAD allocated to a consolidated
group that is a member of an EAG) is
allocated to the members of the
consolidated group in proportion to
each member's QPAI, if any,
group and each member's name, EIN, Cooperatives
and share of the DPAD.
Reduce the amount the cooperative
deducts under section 1382 by the
portion of the cooperative's DPAD
allocated to its patrons. However, the
entire amount on line 25, which
includes any amount allocated to
patrons, is deductible under section
199 by the cooperative. See
5. Provides a copy of the group
DPAD computation schedule to the
other computing members of the
group.
regardless of whether the
consolidated group member has:
EAG computing member other
than the reporting member. An
EAG computing member other than
the reporting member does the
following.
1. Completes a separate Form
8903, skips lines 1–22, and enters its
share of the group deduction on
line 24 as a positive number.
Separate taxable income or loss for
•
the tax year, and
Form W-2 wages for the tax year.
For purposes of allocating the
•
cooperatives in the General
Instructions for more information on
this subject.
DPAD of a consolidated group among
its members, any redetermination of a
corporation's receipts, cost of goods
sold, or other deductions from an
intercompany transaction described in
Regulations section 1.1502-13(c)(1)(i)
or (c)(4) isn't taken into account, and if
a consolidated group member has
negative QPAI, the member's QPAI is
treated as zero.
How to report. Cooperatives aren't
permitted to net patronage losses with
nonpatronage income. Therefore,
they must figure taxable income from
patronage or nonpatronage activities
separately on Schedule G, Form
1120-C.
2. Completes lines 23 and 25.
3. Attaches a schedule showing
how the computing member figured its
own QPAI.
4. Attaches a copy of the group
Patronage income and
deductions only. Cooperatives that
have only patronage income and
deductions generally complete Form
8903 as described earlier in the
instructions.
DPAD computation schedule
Simplified deduction and small
business simplified overall meth-
ods. For purposes of applying the
simplified deduction method and the
small business simplified overall
provided by the reporting member.
Consolidated groups. If the EAG is
comprised of a single consolidated
group, the common parent of the
Instructions for Form 8903 (Rev. 12-2019)
-12-
Patronage and nonpatronage
income and deductions. For tax
years beginning before January 1,
2018, cooperatives with both
patronage and nonpatronage income
or deductions must follow the
instructions below for completing
Form 8903.
Report the total amount of the
DPAD to be claimed on Form 1120-C
on line 25 of Form 8903, and leave
lines 1 through 24 blank. Attach to
Form 8903 separate calculations of
the DPAD from patronage and
conform to lines 1 through 24 of Form
8903.
Enter the DPAD from patronage
and nonpatronage sources reported
on the attachment on line 6a, column
(a), Patronage, and line 6a, column
(b), Nonpatronage, respectively, of
Schedule G, Form 1120-C.
nonpatronage activities, which
Instructions for Form 8903 (Rev. 12-2019)
-13-
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it to ensure that you are complying with these laws
and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be
retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax
returns and return information are confidential, as required by section 6103.
The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden
for individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the
estimates shown in the instructions for their individual income tax return. The estimated burden for all other taxpayers
who file this form is shown below:
Recordkeeping
Learning about the law or the form
Preparing, copying, assembling, and sending the form to the IRS
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5 hr., 58 min.
7 hr., 33 min.
7 hr., 58 min.
If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler,
we would be happy to hear from you. See the instructions for the tax return with which this form is filed.
Instructions for Form 8903 (Rev. 12-2019)
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