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(ii) Qualified employee-
owner.--For purposes of this
subparagraph, the term “qualified
employee-owner” means any
individual who is an employee-owner
of the corporation (as defined in
section 269A(b)(2)) and who is a
writer, photographer, or artist.
Petitioner makes two arguments as to why it is not subject
to the UNICAP rules. First, petitioner argues, it is excepted
from those rules because it is a small reseller under section
263A(b)(2)(B).2 Petitioner asserts that it engages in no
manufacturing or production activity with respect to its paper
products and that it resells those products after buying them
from the producers thereof; namely, petitioner asserts, the
printers. Second, petitioner argues, it is an artistic business
that is exempt from the UNICAP rules by virtue of section
263A(h). Petitioner asserts that Ms. Spafford is a qualified
employee-owner and that she owns substantially all of
petitioner’s stock. Petitioner asserts that Ms. Spafford’s
cartoon characters are original and unique and that her artwork
is reproduced and disseminated through the paper products
primarily for the character’s aesthetic value.
Respondent argues that petitioner does not meet the reseller
exception because it produces rather than resells its paper
2 For purposes of sec. 263A, “resellers” are “retailers,
wholesalers and other taxpayers that acquire property described
in section 1221(1) for resale”. Sec. 1.263A-1(a)(3)(iii), Income
Tax Regs.
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