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of such values shall be taken as the inventory value
of the article.
Section 1.471-3, Income Tax Regs., defines "cost" as
follows:
(a) In the case of merchandise on hand at the
beginning of the taxable year, the inventory price of
such goods.
* * * * * * *
(c) In the case of merchandise produced by the
taxpayer since the beginning of the taxable year, (1)
the cost of raw materials and supplies entering into
or consumed in connection with the product, (2)
expenditures for direct labor, and (3) indirect
production costs incident to and necessary for the
production of the particular article, including in
such indirect production costs an appropriate portion
of management expenses, but not including any cost of
selling or return on capital, whether by way of
interest or profit. See section 1.263A-1T for more
specific rules regarding the treatment of production
costs. * * *
The uniform capitalization rules of section 263A apply to
real or tangible property produced by the taxpayer.5 Sec.
263A(b)(1). Section 263A(a) provides that inventory costs
include the direct costs of such property and such property's
proper share of those indirect costs part or all of which are
allocable to such property. Section 1.263A-1T, Temporary
5 Sec. 263A also applies to real or personal property
described in sec. 1221(1) which is acquired by the taxpayer for
resale except for taxpayers who have annual gross receipts of $10
million or less. Sec. 263A(b)(2). There is no exception
provided for producers who have annual gross receipts of $10
million or less.
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