SECTION
263A.
CAPITALIZATION
AND INCLUSION IN INVENTORY COSTS OF CERTAIN EXPENSES
(a)
NONDEDUCTIBILITY OF CERTAIN DIRECT AND INDIRECT COSTS
(1) IN GENERAL
In the case of any property to which this section
applies, any costs described in
paragraph (2)--
(A)in
the case of property which is inventory in the hands of the taxpayer, shall be
included in inventory costs, and
(B)in
the case of any other property, shall be capitalized.
(2) ALLOCABLE COSTS
The
costs described in this paragraph with respect to any property are--
(A)the
direct costs of such property, and
(B)such
property's proper share of those indirect costs (including taxes) part or all of
which are allocable to such property.
Any cost which (but for this subsection) could not
be taken into account in computing taxable income for any taxable year shall not
be treated as a cost described in this paragraph.
(b)
PROPERTY TO WHICH SECTION APPLIES
Except as otherwise
provided in this section, this section shall apply to--
(1) PROPERTY PRODUCED BY TAXPAYER
Real or tangible personal property produced by the taxpayer.
(2) PROPERTY ACQUIRED FOR RESALE
(A) IN GENERAL
Real or personal property described in section
1221(a)(1) which is acquired by the taxpayer for resale.
(B)
EXCEPTION FOR TAXPAYER WITH GROSS RECEIPTS OF $10,000,000 OR LESS
Subparagraph
(A) shall not apply to any personal property acquired during any taxable
year by the taxpayer for resale if the average annual gross receipts of the
taxpayer (or any predecessor) for the 3-taxable year period ending with the
taxable year preceding such taxable year do not exceed $10,000,000.
(C) AGGREGATION RULES, ETC.
For purposes of subparagraph (B), rules similar
to the rules of paragraphs (2) and (3) of section 448(c) shall apply.
For purposes of paragraph (1), the term "tangible personal
property" shall include a film, sound recording, video tape, book, or
similar property.
(c)
GENERAL EXCEPTIONS
(1) PERSONAL USE PROPERTY
This section shall not apply to any property
produced by the taxpayer for use by the taxpayer other than in a trade or
business or an activity conducted for profit.
(2) RESEARCH AND EXPERIMENTAL EXPENDITURES
This section shall not apply to any amount
allowable as a deduction under section 174.
(3)
CERTAIN DEVELOPMENT AND OTHER COSTS OF OIL AND GAS WELLS OR OTHER MINERAL
PROPERTY
This section shall not
apply to any cost allowable as a deduction under section 263(c), 263(i),
291(b)(2), 616, or 617.
(4) COORDINATION WITH LONG-TERM CONTRACT RULES
This section shall not
apply to any property produced by the taxpayer pursuant to a long-term
contract.
(5) TIMBER AND CERTAIN ORNAMENTAL TREES
This section shall not apply to--
(A) trees raised,
harvested, or grown by the taxpayer other than trees described in clause (ii)
of subsection (e)(4)(B) (after application of the last sentence thereof), and
(B)
any real property underlying such trees.
(6) COORDINATION WITH SECTION 59(e)
Paragraphs (2) and (3)
shall apply to any amount allowable as a deduction under section 59(e) for
qualified expenditures described in subparagraphs (B), (C), (D), and (E) of
paragraph (2) thereof.
(d)
EXCEPTION FOR FARMING BUSINESSES
(1) SECTION NOT TO APPLY TO CERTAIN PROPERTY
(A) IN GENERAL
This section shall not apply to any of the
following which is produced by the taxpayer in a farming business:
(i) Any animal.
(ii)
Any plant which has a pre-productive period of 2 years or less.
(B)
EXCEPTION FOR TAXPAYERS REQUIRED TO USE ACCRUAL METHOD
Subparagraph (A) shall not apply to any
corporation, partnership, or tax shelter required to use an accrual method
of accounting under section 447 or 448(a)(3).
(2) TREATMENT OF CERTAIN PLANTS LOST BY REASON OF CASUALTY
(A) IN GENERAL
If plants bearing an
edible crop for human consumption were lost or damaged (while in the hands
of the taxpayer) by reason of freezing temperatures, disease, drought,
pests, or casualty, this section shall not apply to any costs of the
taxpayer of replanting plants bearing the same type of crop (whether on the
same parcel of land on which such lost or damaged plants were located or any
other parcel of land of the same acreage in the United States).
(B)
SPECIAL RULE FOR PERSON WITH MINORITY INTEREST WHO MATERIALLY PARTICIPATES
Subparagraph (A) shall apply to amounts paid or
incurred by a person (other than the taxpayer described in subparagraph (A))
if--
(i)
the taxpayer described in subparagraph (A) has an equity interest
of more than 50 percent in the plants described in subparagraph (A) at all times
during the taxable year in which such amounts were paid or incurred, and
(ii)
such other person holds any part of the remaining equity interest
and materially participates in the planting, maintenance, cultivation, or
development of such the plants described in subparagraph (A) during the taxable
year in which such amounts were paid or incurred.
The
determination of whether an individual materially participates in any activity
shall be made in a manner similar to the manner in which such determination is
made under section 2032A(e)(6).
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