TG MISSOURI v. COMMISSIONER
Download the complete brief here: 133 T.C. No. 13
UNITED STATES TAX COURT
TG MISSOURI CORPORATION f.k.a. TG (U.S.A.) CORPORATION, A MISSOURI CORPORATION, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8333-06.
Filed November 12, 2009.
P develops and uses production molds to manufacture automotive parts for its customers. P contracts with third-party toolmakers to build the production molds that P does not construct. After a third-party toolmaker finishes constructing a production mold, P purchases the mold and incurs additional design and engineering costs to modify the mold so that it can be used to produce the desired component part. P then either sells the completed production molds to its customers or retains ownership of the molds, but in either case P keeps the molds forproduction of automotive parts.
On its 1998 and 1999 tax returns, in calculating its research credit under sec. 41, I.R.C., P included the amounts it paid the third-party toolmakers for the production molds it purchased and sold to P’s customers, as the cost of supplies.
R determined P improperly included the amounts it paid for such molds as the cost of supplies in computing its sec. 41, I.R.C., research credit because the production molds sold to P’s customers are assets of a character subject to depreciation.
Held: The production molds P sold to its customers are not assets of a character subject to the allowance for depreciation for purposes of secs. 41(b)(2)(C), I.R.C., and 174(c), I.R.C. P properly included the costs of the production molds it purchased from third-party toolmakers and sold to its customers as the cost of supplies for calculating its sec. 41, I.R.C., research credit.
William E. Elwood, Andrew W. MacLeod, and Peter J. Kulick, for petitioner.*
Meso T. Hammoud, Elizabeth R. Proctor, Eric R. Skinner, and Christopher B. Sterner, for respondent.
OPINION
BACKGROUND
DISCUSSION
I. Admissibility of Exhibits 8-P and 9-P
II. Burden of Proof
III. Research Credit Under Section 41
A. Sections 174(c) and 41(b)(2)(C)
B. The Parties’ Positions
C. Analysis of the Language of Sections 174(c) and 41(b)(2)(C)
D. The Phrase “of a Character Subject to the Allowance” for Depreciation in the Context of Other Code Provisions
1. Depreciation Provisions of the Code and Regulations and Relevant Caselaw
2. Other Provisions of the Code
E. Section 1.174-2(b)(2) and (4), Income Tax Regs.
CONCLUSION
* Brief amicus curiae was filed by Leslie J. Schneider and Patrick J. Smith as attorneys for Northrop Grumman Corp.
