Pelaez and Sons, Inc. - Page 9




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                                       OPINION                                        
               The parties have conflicting interpretations of section                
          263A.  Petitioner argues that the statutory requirement that the            
          standard be based on a national weighted average is invalid and             
          should be disregarded in favor of an approach where each                    
          taxpayer’s experience should be the measure of whether the                  
          section 263A “within 2 years test” is met.  Respondent argues               
          that the nationwide average is valid even though no guidance had            
          been issued.  Respondent also notes that any guidance that could            
          have been issued would not have supported petitioner’s position.            
               The statute requires taxpayers to capitalize certain direct            
          and indirect expenses or costs.  See sec. 263A(a)(1).  Section              
          263A does not apply to “any plant which has a preproductive                 
          period of 2 years or less” if produced by the taxpayer in a                 
          farming business.  Sec. 263A(d)(1)(A)(ii).  A “preproductive                
          period” means “in the case of a plant which will have more than 1           
          crop or yield, the period before the 1st marketable crop or yield           
          from such plant”.  Sec. 263A(e)(3)(A)(i).  For plants grown in              
          commercial quantities in the United States, that crop will be               
          within or without the 2-year period based on “the nationwide                
          weighted average preproductive period for such plant.”  Sec.                
          263A(e)(3)(B).  Section 263A(i) provides that the “Secretary                
          shall prescribe such regulations as may be necessary or                     
          appropriate to carry out the purposes of this section”.  Section            






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Last modified: May 25, 2011