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Форма 8903 Інструкції

Інструкція по формуванню 8903, дедукція вітчизняної виробничої діяльності

Ред. Грудень 2019

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  • Форма 8903 - Зниження виробничої діяльності
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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  
published, go to IRS.gov/Form8903.  
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former section 199 has been repealed  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  
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,  
see Line 9, later.  
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)  
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8903 as described in the instructions.  
However, if you have both patronage  
and nonpatronage income and  
deductions, see Line 25 before  
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.  
See Line 24 before completing Form  
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,  
see Film production under S  
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)  
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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.  
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)  
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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).  
Method.  
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)  
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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.  
partnerships, under Simplified  
Deduction Method, earlier, for the  
requirements.  
Eligible 861 partnership. See  
Partnerships, under Section 861  
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.  
Estates and trusts. See Line 11,  
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  
qualified film. See Qualified Film,  
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  
see Step 2, later, to determine the  
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  
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.  
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,  
and go to Line 4.  
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 trusts, earlier under Definitions  
and Special Rules.  
Note. If you have extraterritorial  
income (ETI), figure taxable income  
without regard to any claimed ETI  
exclusions.  
and trusts, earlier under Definitions  
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.  
Members of EAGs. See Line 24,  
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)  
-14-