Exam REG Topic 1 Question 16 Discussion

Explanation
Choice "d" is correct. Uniform capitalization rules apply to the following: (1) real or tangible personal
property produced by the taxpayer for use in his or her trade or business; (2) real or tangible personal
property produced by the taxpayer for sale to his or her customers; and (3) real or tangible personal
property acquired by the taxpayer for resale, provided the taxpayer's annual average gross receipts for
the preceding three years exceeds $10,000,000. Warehousing costs incurred by a manufacturing
company (making inventory for sale to its customers) are subject to the Uniform Capitalization Rules.
Further, they are the only item on the list that is real or tangible personal property. In this case, the
inventory is not acquired for resale (it is produced by the taxpayer for sale to his or her customers), so the
fact that the annual sales are $12,000,000 does not matter in this case. The sales could have been less
than $10,000,000 annually, and the Uniform Capitalization Rules would still have applied.
Choices "a", "b", and "c" are incorrect, based on the above discussion.