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virtue of the fact that petitioner had failed to change its
method of accounting to account for the UNICAP rules.
Discussion
We decide primarily whether petitioner is subject to the
UNICAP rules of section 263A. The UNICAP rules, which generally
require capitalization of expenses related to tangible property,
were added to the Internal Revenue Code as part of section 803 of
the Tax Reform Act of 1986 (TRA), Pub. L. 99-514, 100 Stat. 2085,
2350. As applicable herein, the UNICAP rules are effective with
respect to taxable years beginning after December 31, 1986. See
TRA sec. 803(d)(2)(A).
Section 263A provides in relevant part:
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 –
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