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ARTICLE · 05 JANUARY 2015

IRS Memo Limits Software-Based Section 199 Deductions

Grant Thornton LLP
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The IRS has issued a general legal advice memorandum, rejecting a taxpayer’s attempt to treat revenue attributable to a downloadable computer software application that allowed access to the taxpayer’s online banking system as qualifying domestic production gross receipts.

United StatesTax
Mel Schwarz
Mel Schwarz
Dustin Stamper
Dustin Stamper
Shamik Trivedi
Shamik Trivedi
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The IRS has issued a general legal advice memorandum (GLAM 2014-008), rejecting a taxpayer's attempt to treat revenue attributable to a downloadable computer software application that allowed access to the taxpayer's online banking system as qualifying domestic production gross receipts (DPGR) under Section 199.

The IRS memo takes the positions that the application was not qualifying personal property (QPP), since it was "online software," and that none of the taxpayer's gross receipts were derived directly from the disposition of the software. The memo, released Dec. 5, rejected the attribution of any DPGR to the online banking software itself, because no third party provided substantially identical software to similar customers.

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