SECTION 6. EXAMPLE

The following example illustrates an application of the rules in this revenue procedure. Assume that each partner has sufficient adjusted gross income or taxable in

reports allocable shares of QPAI and W–2 wages directly to its partners or shareholders. Each partner or shareholder must use its reported share of QPAI and W–2 wages (subject to section 4.05 of this revenue procedure) in calculating its § 199 deduction.

.05 Adjustment for disallowed losses or deductions and for the allowance of sus- pended losses or deductions . An eligible entity that calculates QPAI at the entity level also must report to each partner (except for a partner that is not a qualifying partner with respect to an eligible § 861 partnership) or shareholder its allocable share (as determined under §§ 702 and 704, or § 1366, respectively) of the aggregate amount of losses or deductions attributable to the entity’s qualified production activities. A partner or shareholder to which an allocation of QPAI and W–2 wages is made must increase its reported share of QPAI by its allocable share of losses or deductions attributable to the entity’s qualified production activities that reduced QPAI for the entity level calculation but that are disallowed by the application of § 465, 469, 704(d), or 1366(d) for the taxable year. Such a partner or shareholder also must decrease its reported share of QPAI by its allocable share of any previously suspended losses or deductions attributable to the entity’s qualified production activities that are currently allowed by application of § 465, 469, 704(d), or 1366(d) for the taxable year. However, losses or deductions of a partnership or S corporation that are disallowed for taxable years beginning on or before December 31, 2004, are not taken into account in a later taxable year for purposes of computing the partner’s or shareholder’s QPAI for that later taxable year, whether or not those losses or deductions are allowed for other purposes.