July 26, 2017 Corporate Tax
Multichannel Video-Programming Distributors (MVPDs) and Television Broadcasters Under IRS Scrutiny
Just a few months ago the Internal Revenue Service Large Business and International (LB&I) division announced its “13 Campaigns.” The campaigns are essentially a new way of conducting IRS audits. Rather than audit the returns of large corporate taxpayers trying to uncover issues, the IRS is moving more toward issue-based examinations. These initial 13 campaigns span a broad range of topics.
One campaign in particular focuses on MVPDs and television broadcasters, including NBC, Amazon, Google, and Netflix. This community feels strongly that they qualify for the IRC Section 199 deduction typically reserved for U.S. manufacturers of tangible goods. They assert that they should legitimately be able to claim this deduction since their distribution of channel and subscription packages, as well as film production constitutes tangible goods. To ensure compliance, the IRS has developed a strategy to validate the use of IRC Section 199 deductions by broadcasters and MVPDs. Although allowed, its use is subject to increased scrutiny and must be weighed carefully against other financials.
It is important that tax and financial executives determine the bottom-line tax impact of the Section 199 deduction. This type of sophisticated analysis requires advanced software that enables a company to perform “what-if” analysis over multiple years. In addition, the solution should provide the ability to compare current tax strategies against past and future guidance.
Example of a fictitious company modeling out various scenarios with and without IRC Section 199.
Companies can use this valuable data to position themselves favorably and ensure future tax strategies, such as the Section 199 tax deduction, are in compliance with the latest IRS guidance. BNA Corporate Tax™ Analyzer can help you with the complexities of this decision-making process.