Commissioner V. Idaho Power Co. - Significance

Significance

This case deals with the costs and tax consequences related to producing real and tangible personal property, when a taxpayer constructs property instead of purchasing it. This result was codified in §263A of the Internal Revenue Code (known as the uniform capitalization rules or the Unicap rules). This requires the capitalization of all direct and indirect costs allocable to the construction or production of real property or tangible personal property. It also applies to the acquisition of inventory materials and wages paid to builders or other production workers.

Direct costs include raw materials and wages paid to builders or other production workers. Treas. Reg. §1.263A-1(e)(2).

Indirect costs include repairs, depreciation, utilities, rent, sales tax, property tax, insurance, storage, and packaging. Treas. Reg. §1.263A-1(e)(3).