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On audit, respondent determined that the above costs were
not currently deductible by petitioners under section 162 as
ordinary and necessary business expenses but instead should be
included under section 263A in petitioners’ inventory costs of
the manufactured homes.
OPINION
Generally, under section 263A(a) and (b), indirect costs
allocable to inventory acquired for resale are not currently
deductible and are to be included in inventory.3
Regulations promulgated under section 263A expressly include
transportation, rent, taxes, and repair and maintenance costs
relating to property held for resale as examples of indirect
costs to be included in inventory. Sec. 1.263A-1(e)(3)(ii)(G),
(K), (L), (O), Income Tax Regs.
Also, costs associated with storing property held for resale
generally are to be included in inventory. Sec. 1.263A-
1(e)(3)(ii)(H), Income Tax Regs.
However, under section 1.263A-1(e)(3)(iii)(I), Income Tax
Regs., storage costs relating to inventory which are incurred by
3 Although residential homes constructed on-site for resale
generally are not treated as inventory and costs associated
therewith are to be capitalized under sec. 263A(a)(1)(B),
manufactured homes, as long as they have not become fixtures to
real property, are treated as personal property, and costs
associated therewith are subject to inventory treatment under
sec. 263A(a)(1)(A). See, e.g., Murray v. Zerbel, 764 P.2d 1158,
1161 (Ariz. Ct. App. 1988)
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Last modified: May 25, 2011