Opinion ID: 357
Heading Depth: 2
Heading Rank: 2

Heading: The Tax Controversy

Text: On Robinson's Forms 1120, U.S. Corporation Income Tax Return, for taxable years ending March 1, 2003, and February 28, 2004, Robinson deducted the above-mentioned payments to Corning and Oneida as ordinary and necessary business expenses under 26 U.S.C. § 162. The IRS determined instead that under 26 U.S.C. § 263A and the accompanying Treasury Regulations the royalty payments, rather than being immediately deductible, must be added to Robinson's capital and deducted only over time, in line with complex accounting principles. As a result, the IRS denied the deduction and issued a notice of deficiency to Robinson. Robinson petitioned the Tax Court for a redetermination of the deficiency. Robinson there argued, as it does here, that the royalty payments were not required to be capitalized under the § 263A regulations. The Tax Court rejected Robinson's arguments. It held that, within the meaning of the Treasury Regulations, the royalties directly benefited Robinson's production activities and/or were incurred by reason of those activities. It also held that the royalties were not marketing costs exempt from § 263A capitalization under those regulations. Robinson timely appealed to this Court.