Jason Massie answers:
If your facts are similar to TG, we can claim those as QREs.
TG would purchase production molds from third parties, alter them to meet customer specifications, and then either hold them or sell them.
For the physical molds they held and continued to own, TG did not claim those (third-party mold costs) as QREs. However, the 174 costs incurred internally to alter the molds should have been QREs. The case did not address those. In addition, there is an example in the regs to support this treatment.
For the physical molds sold to customers, TG took the third-party mold costs plus internal costs to alter the molds as QREs. The IRS argued that the molds were subject to depreciation and not QREs. The Court disagreed.
You will need to review the SOW/purchase order with the customer to determine if your facts are similar and whether these expenses qualify. If the customer is going to retain ownership of the mold, you will likely need to capitalize those third-party mold costs and not pull them in as QREs. If the customer is purchasing the mold, the company may be able to treat all costs as QREs. You will want to review the facts and circumstances to determine whether they align with the relevant court cases.
Please contact the MASSIE team if you want to discuss this topic further or require assistance with your calculations.
Disclaimer: The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation.
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