SECTION 1. PURPOSE

This revenue procedure provides methods for calculating W–2 wages for purposes of § 199(b)(1) of the Internal Revenue Code, which limits the amount of the § 199 deduction for income attributable to domestic production activities to 50 percent of the W–2 wages of the taxpayer for the taxable year.

Section 1.199–2(e)(3) of the Income Tax Regulations provides the Internal Revenue Service with authority to issue guidance providing the methods that may be used to calculate W–2 wages. Section 1.199–2(e)(3) is only effective for taxable years beginning on or after June 1, 2006. However, pursuant to § 1.199–8(i)(1), a taxpayer may apply § 1.199–2(e)(3) to a taxable year beginning before June 1, 2006, provided that the taxpayer applies all the provisions of §§ 1.199–1 through 1.199–9 to the taxable year (or all the provisions of §§ 1.199–1 through 1.199–8 for a taxable year beginning after May 17, 2006, the enactment date of the Tax Increase Prevention and Reconciliation Act of 2005 (Public Law 109–222) (TIPRA), and before June 1, 2006). This revenue procedure provides such guidance for taxpayers who choose to apply the final regulations to taxable years beginning before June 1, 2006, but only for taxable years beginning on or after January 1, 2005, and on or before May 17, 2006.