The Internal Revenue Service has issued an alert concerning amended returns and claims for the Domestic Production Activities Deduction.

It was repealed as part of the Tax Cuts and Jobs Act for taxable years after Dec. 31, 2017, but the IRS says it has since “received a wave of questionable amended returns and claims for tax benefits” in the billions of dollars.

“We have no qualms with taxpayers claiming benefits allowed by law,” said Doug O’Donnell, commissioner of the IRS’s Large Business and International Division, in a statement. “But a very high percentage of the claims for the now repealed Domestic Production Activities Deduction are not properly supported by those claiming it.”

Most of the filings involve taxpayers who are claiming DPAD for the first time, based on studies conducted after the fact, which contain unreasonable assumptions of facts and law.

IRS tax examiners have been advised to consider Sec. 6676, “Erroneous Claim for Refund or Credit,” penalties, other applicable penalties, and referrals to the Office of Professional Responsibility when appropriate. Taxpayers and their advisors should ensure they have documentation to support their position and expect that the IRS may impose appropriate penalties unless taxpayers establish that they have reasonable cause. A study does not necessarily provide reasonable cause.

“Any corporate taxpayer who is considering filing such a claim should reconsider. Taxpayers who have already filed can withdraw prior to IRS audit contact to avoid penalties,” O’Donnell added.

In 2018, LBI launched a campaign to assess for risk claims or amended returns under the repealed section of the law. The IRS will continue to audit this issue even though the section was repealed.

Last July, the IRS issued an advice memorandum addressing examples of meritless Sec. 199 online software activity. In many cases, taxpayers have completely conceded the claim once challenged. The IRS continues to litigate Sec. 199 issues.