Analysis of Qualified Costs
(After Identification of Qualified Taxpayer and Qualified Property)
Note: Classification of Qualified Costs (Yes, No, Possibly) is based on
a reading of the regulations under 263A and tax accounting concepts. This
classification is consistent with that of various tax services.
| Capitalized Direct Production Costs (1) : | Qualified MIC Costs? |
| Direct Labor costs | Yes |
| Materials costs | Yes |
| Capitalized Indirect Production Costs (2) : | |
| Bidding costs | No |
| Capitalizable service costs | No |
| Engineering and design costs (3) | Possibly |
| Handling costs (4) | Possibly |
| Indirect labor costs | No |
| Indirect material costs (4) | Possibly |
| Insurance | No |
| Interest | No |
| Licensing and franchise costs | No |
| Officer's compensation (5) | Possibly |
| Pension and other related costs | No |
| Purchasing costs | Yes |
| Quality control | No |
| Rents | No |
| Repairs and maintenance (6) | Possibly |
| Spoilage | No |
| Storage costs | No |
| Taxes (any type) | No |
| Tools and equipment (4) | Possibly |
| Utilities | No |
| Deductible Indirect Production Costs: | |
| Cost recovery allowances (idle equipment) | No |
| Deductible service costs | No |
| Income taxes | No |
| IRC §165 losses | No |
| IRC §179 costs | No |
| On-site storage costs | No |
| IRC §174 research & experimental costs (4, 7, 8) | Possibly |
| Selling and distribution costs | No |
| Strike expenses | No |
| Unsuccessful bidding costs | No |
| Warranty and product liability costs (4, 8) | Possibly |
1 As defined in Treasury Regulation §1.263A-1(e)(2)(i).
2 As defined in Treasury Regulation §1.263A-1(e)(3)(ii).
3 Refer to FTB Legal Rulings 98-1 and 2000-1.
4 Will qualify only if sales or use tax has been paid on these costs.
5 Will qualify only if officer's activity would otherwise qualify as direct labor.
6 For materials used in the activity, sales or use tax must be paid, plus any direct labor costs.
7 As provided in Treasury Regulation §1.263A-1(e)(3)(iii), may qualify if capitalized.
8 May qualify as an "auxiliary establishment".
Revised: August 29,2002