1120-US: Taxable income calculation on Form 1139 when there is a Domestic Production Activity Deduction (DPAD) in prior year (FAQ)

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Question

How does NOL carryback affect the Domestic Production Activity Deduction (DPAD) in the prior year?

Answer

If the amount of the Domestic Production Activity Deduction was limited based on taxable income or QPAI, then the DPAD needs to be recalculated since NOL carryback reduces these values.

  1. If taxable income is less than QPAI, then the NOL carryback reduces taxable income and the amount of the section 199 deduction in the carryback year.
  2. If QPAI is less than taxable income, the section 199 deduction does not change in the carryback year unless QPAI exceeds taxable income after applying the NOL carryback.

Notes

  • UltraTax CS automatically recalculates the amount of Domestic Production Activity Deduction when NOL carryback information is entered on Screen Amend-2 in the Separate Filings folder.
  • Form 1139 should not be used to report a change in Domestic Production Activity Deduction due to NOL carryback. Per the instructions for Form 1139, UltraTax CS automatically displays the taxable income before carryback amount in the taxable income after carryback column.
  • Form 1120X can be filed to report a change in Domestic Production Activity Deduction due to NOL carryback since this deduction causes a difference in the amount of taxable income before and after carryback.

Related topic: 1120-US: Form 1139 - Application for refund FAQs

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