Washington Tax Alert August 26, 2013 (IRC § 199 deduction — assembling)

Washington Tax Alert from Don Barnes, [email protected]

August 26, 2013

A federal district court in California recently issued a decision holding that an S corporation engaged in the business of assembling gift baskets and gift towers could claim an IRC § 199 deduction with respect to sale of the gift baskets and gift towers. United States v. Dean, 112 AFTR2d 2013-___ (C.D. Cal. 2013). The S corporation in the case (and its two shareholders) claimed the IRC § 199 deduction on amended tax returns. The Government has decided not to appeal the decision.

The court’s holding in Dean liberally construed what constitutes “assembly” of component articles into a product. The court’s rationale should apply to other taxpayers engaged in assembling products.

The Dean case has been criticized by a former New York Times reporter whose criticism included personal attacks on the judge’s intelligence and common sense.

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