Under the Internal Revenue Code (IRC) Section 199, partnerships and S corporations (i.e., Forms U.S. 1120S and U.S. 1065) are not allowed to take the Domestic Activities Production deduction for federal purposes. Similarly, for Illinois purposes, taxpayers filing Forms IL-1120-ST and IL-1065 are not allowed to deduct those amounts when calculating their Illinois income subject to the Personal Property Replacement Income Tax. According to IRC Section 199, partners and shareholders are entitled to the deduction, and therefore, are also entitled to the deduction when calculating their taxable Illinois income. For more information, please see
Informational Bulletin FY2006-07, Domestic Activities Production Deduction. For tax years ending on or after December 31, 2017, the Domestic Production Activities Deduction (DPAD) allowed under Section 199 of the Internal Revenue Code (IRC) must be added back to federal taxable income on Line 9 of Schedule M.