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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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This is a Domestic Production tax credit question....I have

Customer Question

This is a Domestic Production tax credit question....I have a client that makes tennis courts for residential communites,hotels and refurbushes existing courts,etc ( in Fla)...Does this activity qualify for the tax credit??? Secondly,if it does, all labor is from an employee leasing company.thus,the company does NOT have W-2 WAGES.....Does the company qualify for the credit?????(the company is profitable).....
Submitted: 1 year ago.
Category: Tax
Expert:  Tax-Scholar replied 1 year ago.
Hello and welcome to Just Answers. Yes this should qualify for the IRC 199 Domestic Production Activities Deduction. It is not a credit. However you're correct they need W-2 Wages to claim the credit as it is limited to 50% of the W-2 wages. I'll need to consider if refurbishing is qualifying. However first lets get passed the wage issue. What type of entity is both these companies (partnership, corporation, etc)? And is there common ownership?
Customer: replied 1 year ago.
There is only one company, an S corp... If they can't get past the W-2 issue, the sales breakdown is a moot point. Thank you for your immediate response...
Expert:  Tax-Scholar replied 1 year ago.
Well there is still hope. The W-2 limit is an overall limit. The S Corp shareholders are the ones that get to take the DPAD deduction. So maybe they can use the wages at the employee leasing company. Let me consider this. Still need to confirm there is similar ownership and that the leasing company is a pass-through?
Customer: replied 1 year ago.
The employee leasing company is a billion dollar unrelated entity that our client uses to save on workmens comp,health insurance,etc.....Thanks anyway for trying..............
Expert:  Tax-Scholar replied 1 year ago.
The IRC 199 regulations do allow the common law employer to take the W-2 wages even if they are not the ones issuing the W-2. Here is what the reg says 1.199-2Wages paid by entity other than common law employer. In determining W-2 wages, a taxpayer may take into account any wages paid by another entity and reported by the other entity on Forms W-2 with the other entity as the employer listed in Box c of the Forms W-2, provided that the wages were paid to employees of the taxpayer for employment by the taxpayer Excerpt from BNA: Employers often retain the services of third-party agents authorized by the IRS to administer certain payroll responsibilities of the employer. An agency relationship may also exist in the context of a common paymaster. In a situation in which two or more related corporations concurrently employ the same individual, the individual may be compensated by one of the related corporations (i.e., the common paymaster). Each related corporation is considered to have paid as remuneration to the individual only the amounts actually disbursed by it, despite the payment of other amounts through the common paymaster Sounds like we still might be able to claim DPAD.
Expert:  Tax-Scholar replied 1 year ago.
The Per Diem is not taxable while you are away form your tax home. However if the assignment is expected to last longer than 1 year then it should be income. I've seen contractors ask their employees where their tax home is and do surveys. They then update payroll and run it through the W-2. If your company is giving you a Per Diem and not running it through your wages. Then it is up to you if you want to report it as Other Income on your W-2. If you then incur any expenses related to your job they can be deducted on Schedule A and Form 2106. Does your employer know about the 1 year rule?