Main Issue:
Supplies expense
Facts:
Taxpayer designs and engineers production molds which are then sold to their customers
Taxpayer maintains possession of the molds
Taxpayer included the costs of the actual molds as a supply expense
IRS argued that the molds are a character subject to depreciation and not qualified supply expense
Conclusion:
The court sided with the taxpayer stating that there should be a fact-specific analysis to determine:
whether the supplies were utilized in a qualified development project
whether the supply is depreciable in the hands of the taxpayer
Take-Away Point:
Many mold companies may be understating QREs associated with molds. Need to make sure the inclusion of mold costs is appropriate based on the two-prong analysis above
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