- 19 - of their lack of an accounting for costs, respondent attempted to reconstruct them from petitioners' receipts and canceled checks. In the reconstruction, respondent included as cost of goods sold $2,008.06 of indirect costs incurred in 1995 along with other verified Vallecito costs of $61,353.99 to arrive at a cost of goods sold of $69,049.98, an amount less than that reported on the return. Had respondent allowed the $2,008.06 as expenses for 1995, the adjustment to cost of goods sold for 1996 would have been larger by that amount. The uniform capitalization rules of section 263A(a)(1) require that all direct costs and certain indirect costs allocable to certain property be included in inventory, or capitalized if such property is not inventory. Items that would not otherwise be taken into account1 in computing taxable income may not be taken into account as costs allocable to property under section 263A. See sec. 263A(a). For settlement purposes, after verification of the purpose of the $11,104.67 check to the US Bank, Appeals agreed that the $2,008.06 in costs was associated with the construction or acquisition of the Vallecito property sold in 1996 and is deductible as expenses for 1995. Appeals cited as authority for the agreement the de minimis rule of the simplified production method of section 1.263A-2(b)(3)(iv), Income Tax Regs. The 1If, for example, an item of indirect cost were not properly substantiated under sec. 274, it would not be a proper cost under sec. 263A. See sec. 1.263A-1(c)(2), Income Tax Regs.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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