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IRC Section 263A-1: A Case Study Of Hawk Manufacturing

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Hawk Manufacturing is engaged in producing heavy plastic liners that are installed in the beds of pickup trucks of different sizes. The products that the company manufacture offer are dent and scratch protection to protect the paint and other finish of the truck. Moreover, the company also offers some upper-end products, including metal tool chests and fiberglass covers. According to the fundamental background of Hawk Manufacturing, several indirect costs, such as purchasing, storage, handling, were incurred in the production procedure and classified as incurred for financial reporting purpose rather than inventory. Issue Should indirect costs be included in the entity’s tax inventory determinations? Discussion and Analysis There are several Internal Revenue Service codes that I find to deal with the issue in Hawk Manufacturing. IRC Section 263A …show more content…

Moreover, the Section mentions that indirect costs include all costs other than direct costs, and only some indirect costs are required to be capitalized, such as purchasing costs, handling costs, and storage costs. Section 471 shows the use of inventories is essential to determine the income of any taxpayer, inventories shall be taken by such taxpayer. Recalling the basic background of Hawk Manufacturing, the purpose of Hawk Manufacturing’s indirect costs is for producing bed liners, and the company purchased different types of components which were in the hands of the company, such as metal tool chests, clips, and fiberglass. As a result, from the Section 263A(a), these indirect costs should attribute to inventory and be capitalized. The indirect costs in the firm also included purchasing costs and storage costs. As a result, through 263A(a), the regulation in-depth proves that these costs should be deemed as the entity’s tax inventory determinations and needed to be

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