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IRS Denies Domestic Production Activities Deduction to Book Publisher



On March 29, 2013 the IRS released a Chief Counsel Advice Memorandum which denied a taxpayer, who was a publisher of books, from receiving the domestic production activities deduction (DPAD). Specifically, the IRS ruled that the taxpayer’s activities, with respect to its books, did not constitute the manufacture, production, growth, or extraction (MPGE) of qualifying production property (QPP) which is required for purposes of the DPAD.


The taxpayer was a publisher of books and other printed materials and also participated in market research, resource planning, content and layout development, and editing. These activities allowed the taxpayer to create an electronic version of a book. The taxpayer then provided contract manufacturers with the electric version of the book to create printing plates that the contract manufacturer would use to print multiple copies of the book. 

An MPGE activity is defined as activity that results in QPP. Further, the regulations provide that the term MPGE includes manufacturing, producing, growing, extracting, installing, developing, improving, and creating QPP, making QPP out of scrap, salvage, or junk material as well as 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.

The taxpayer’s activities of market research, content and layout development, and editing resulted in the creation of the electronic version of a book. However, the IRS ruled that an electronic version of a book was intangible property and, therefore, did not qualify as QPP. The taxpayer’s activities were not considered MPGE activities.

Since the taxpayer’s activities did not result in the MPGE of QPP, the taxpayer did not receive a domestic production activities deduction.

To learn more about CohnReznick’s Tax Specialty Services, please visit our webpage.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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