Grant Thornton LLP Calls for Effective Section 199 Safe Harbors.

CHICAGO -- Grant Thornton LLP has asked the Internal Revenue Service (IRS) and the Department of the Treasury (Treasury) to issue additional safe harbor rules under Section 199 to minimize the burden of tracking W-2 wages.

The Tax Increase Prevention and Reconciliation Act of 2006 (TIPRA) limits a taxpayer's section 199 deduction to 50% of its W-2 wages allocable to domestic production gross receipts (DPGR). Without sufficient safe harbors, the TIPRA amendment will increase the complexity of calculating the section 199 deduction.

Treasury and the IRS have recently issued proposed guidance that includes safe harbors intended to limit the potential complexity and burden of complying with the TIPRA amendments. These safe harbors will be sufficient only for the smallest of businesses. For other businesses, the safe harbor in the proposed guidance mandates a complex, multi-step calculation. This calculation requires taxpayers to determine the amount of wages that have been absorbed into a variety of expenditure categories -- information that is not currently tracked and may not be determinable for many taxpayers.

Grant Thornton recommends that the final regulations contain a general safe harbor rule eliminating the need for such complexity where the possibility the TIPRA wage limitation will apply is remote.

"Congress intended Section 199 to encourage businesses to produce property and employ people in the United States," says Dean Jorgensen, partner in charge of Grant Thornton's National Tax Office in Washington, D.C. "Treasury and the IRS need to administer Section 199 so that the burden of compliance does not compromise the benefits designed to preserve American jobs. Safe harbors that identify situations where limitations are not expected to change the deduction should be an integral part of administering this section of the tax code."

Grant Thornton has provided the Treasury and IRS with a comment letter detailing its concerns and recommendations. The comment letter can be viewed at: http://www.grantthornton.com/portal/site/gtcom/ menuitem.91c078ed5c0ef4ca80cd8710033841ca/?vgnextoid=247f5402b00e5010V gnVCM100000308314acRCRD&vgnextfmt=default. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)

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