- 31 -
during the taxable year. An allocation method is
reasonable if, with respect to the taxpayer’s
production or resale activities taken as a whole--
(i) The total costs actually capitalized
during the taxable year do not differ
significantly from the aggregate costs that
would be properly capitalized using another
permissible method described in this section
or in �� 1.263A-2 and 1.263A-3, with
appropriate consideration given to the volume
and value of the taxpayer’s production or
resale activities, the availability of
costing information, the time and cost of
using various allocation methods, and the
accuracy of the allocation method chosen as
compared with other allocation methods;
(ii) The allocation method is applied
consistently by the taxpayer; and
(iii) The allocation method is not used
to circumvent the requirements of the
simplified methods in this section or in �
1.263A-2, 1.263A-3, or the principles of
section 263A.
Sec. 1.263A-1(f)(4), Income Tax Regs.
C. Application of Sections 460 and 263A to Qwest’s Conduit
Installation Projects
The instant case presents a unique issue: When a taxpayer
performs a long-term contract and simultaneously produces
property retained by the taxpayer, how are the indirect costs of
the two activities allocated under sections 263A and 460? The
sections, applicable regulations, and prior caselaw provide
limited guidance as to how the two Code sections interact when
both must be applied to the same project.
Respondent asserts that the order in which the Code sections
and regulations are applied will make a difference in the outcome
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011