John J. Reichel - Page 5

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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               
                         (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                                  
                    *    *    *     *      *    *       *                             
                    (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                     
                    *    *    *     *      *    *       *                             
                    (g) Production.--For purposes of this section--                   

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