- 8 -
produced property would have to be allocated to that property.
However, section 1.263A-1(e)(3)(i), Income Tax Regs., provides
that “Indirect costs may be allocable to both production and
resale activities, as well as to other activities that are not
subject to section 263A.” The section then requires that
indirect costs be reasonably allocated between taxpayer-produced
property and the taxpayer’s other activities. If all indirect
costs that directly benefit the taxpayer-produced property were
allocated to that property, as respondent suggests, common
indirect costs that also benefit the taxpayer’s other activities
could not be reasonably allocated to those activities, as
contemplated by the remainder of the section.
Similar to section 1.263A-1(e)(3)(i), Income Tax Regs.,
section 1.451-3(d)(6)(ii), Income Tax Regs., provides that costs
which directly benefit the performance of long-term contracts
must be allocated to those contracts. If we interpreted section
1.451-3(d)(6)(ii), Income Tax Regs., in the same manner
respondent interprets section 1.263A-1(e)(3)(i), Income Tax
Regs., the two sections would contradict each other when a
taxpayer like petitioner must allocate common indirect costs that
directly benefit both taxpayer-produced property and long-term
contracts. Section 1.263A-1(e)(3)(i), Income Tax Regs., would
require that the taxpayer allocate 100 percent of the common
indirect costs that directly benefit both the taxpayer-produced
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011