Greg McIntosh and Sheila R. McIntosh - Page 19

                                       - 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

Last modified: May 25, 2011