In mid-October 2006, the IRS and Treasury published Rev. Proc. 2006-47,
which provides methods to compute W-2 wages (as defined in Section
1.199-2(e)(1) — hereinafter “(e)(1) wages”) and
published temporary regulations which provide methods for determining the
amount of (e)(1) wages (calculated under Rev. Proc. 2006-47) that are
properly allocable to DPGR. The
temporary regulations provide, generally, that a taxpayer may determine
the amount of (e)(1) wages “properly allocable” to DPGR using
any “reasonable method that is satisfactory to the IRS based on all
the facts and circumstances.” The regulations offer safe harbor
methods for computing wages properly allocable to DPGR. The safe-harbor
method a taxpayer uses depends on whether the taxpayer uses either the
Section 861 or the simplified deduction method to allocate costs or
whether the taxpayer uses the small business simplified overall
method.
