Q2:

First Sean need to determine the activity is a qualified domestic production activity. - for that he
has to see whether the extraction and processing is done significantly within the US. This
deduction is designed to reduce the tax burden on domestic manufacturers like Sean to make
investments in domestic production facilities more attractive. If Sean qualifies, DPA deduction is
9% the lesser of 1) qualified production activity income or 2) the businesss taxable income
before deduction.
To computer QAPI, Sean has to determine the amount of revenues, cost of goods sold and
expenses attributable to US extraction and processing facilities of Gold Inc..
Another limitation on the deduction is that the deduction is limited to 50% of wages i.e. the
wages Sean paid to employees working on the project.
Finally, here the taxable income limitation is determined after the application of any net
operating loss deduction for the tax year. If the respective NOL carry-forward eliminates the
current taxable income for Gold, Inc., it is ineligible for DAPD. And since the IRS has designated
this deduction as a Tier 1 issue, the chances for IRS audits are increased. Thus, Gold Inc is
advised to ensure detailed supporting documentation is up-to-date and audit ready.