Plastic Engineering & Technical Services, Inc. - Page 9




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          and have no persuasive value to petitioner’s case.1                         
               Accordingly, we find that the royalty payments incurred by             
          petitioner in 1995 are indirect costs to the production of the              
          end products, and, as such, the royalty payments are subject to             
          the capitalization rules of section 263A.                                   
               We have considered all of the other arguments made by                  
          petitioner, and, to the extent we have not addressed them,                  
          conclude they are without merit.                                            
               To reflect the foregoing,                                              
                                                  Decision will be entered            
                                             for respondent.                          













          1    We note that Wood v. United States, 377 F.2d 300 (5th Cir.             
          1967), and J. Strickland & Co. v. United States, 352 F.2d 1016              
          (6th Cir. 1965), were decided approximately 20 years before                 
          Congress enacted sec. 263A in the Tax Reform Act of 1986, Pub. L.           
          99-514, sec. 803, 100 Stat. 2350.  Petitioner also cited the                
          following cases which concerned the research and experimental               
          expenditures deduction under sec. 174 and years in issue from               
          1976 through 1984:  Harris v. Commissioner, T.C. Memo. 1990-80              
          (tax years 1979-1982), affd. 16 F.3d 75 (5th Cir. 1994); Estate             
          of Cook v. Commissioner, T.C. Memo. 1993-581 (tax years 1976-               
          1982); Research Two Ltd. Pship. v. Commissioner, T.C. Memo. 2000-           
          259 (tax years 1982-84).                                                    





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