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We agree with respondent. We start our analysis with the
relevant text, which reads as follows:
SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY
COSTS OF CERTAIN EXPENSES.
(a) Nondeductibility of Certain Direct and Indirect
Costs.--
(1) In general.--In the case of any
property to which this section applies, any
costs described in paragraph (2)--
(A) in the case of property
which is inventory in the hands of
the taxpayer, shall be included in
inventory costs, and
(B) in the case of any other
property, shall be capitalized.
(2) Allocable costs.--The costs
described in this paragraph with respect to
any property are--
(A) the direct costs of such
property, and
(B) such property's proper
share of those indirect costs
(including taxes) part or all of
which are allocable to such
property.
* * * * * * *
(b) Property to Which Section Applies.--Except as
otherwise provided in this section, this section shall
apply to--
(1) Property produced by taxpayer.--Real
or tangible personal property produced by the
taxpayer.
* * * * * * *
(g) Production.--For purposes of this section--
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