Anschutz Company and Subsidiaries - Page 10

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          the performance of * * * long-term contracts, must be allocated             
          to * * * long-term contracts”.  These sentences, in isolation, do           
          not provide a rule for how indirect costs that directly benefit             
          or are incurred by reason of both taxpayer-produced property and            
          long-term contracts should be allocated between the property and            
          the contracts.  To allocate indirect costs between taxpayer-                
          produced property and long-term contracts when the same costs               
          benefit both the property and the contracts, the remainder of the           
          sections must be considered.                                                
               Each section goes on to recognize that some indirect costs             
          may be allocable to activities subject to that section (either              
          taxpayer-produced property or long-term contracts) and to the               
          taxpayer’s other activities.  In pertinent part, section 1.263A-            
          1(e)(3)(i), Income Tax Regs., provides:                                     
               Indirect costs may be allocable to both production and                 
               resale activities, as well as to other activities that                 
               are not subject to section 263A.  Taxpayers subject to                 
               section 263A must make a reasonable allocation of                      
               indirect costs between production, resale, and other                   
               activities.  [Emphasis added.]                                         
          Similarly, section 1.451-3(d)(6)(ii), Income Tax Regs., provides:           
               Certain types of costs may directly benefit, or be                     
               incurred by reason of the performance of * * * long-                   
               term contracts of the taxpayer even though the same                    
               type of costs also benefits other activities of the                    
               taxpayer.  Accordingly, such costs require a reasonable                
               allocation between the portion of such costs that are                  
               attributable to * * * long-term contracts and the                      
               portion attributable to the other activities of the                    
               taxpayer.  [Emphasis added.]                                           

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Last modified: May 25, 2011