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Tax Court decision: The Tax tax. The court stated that even if the rules. This practice unit outlines the
Court has limited jurisdiction and can $625,000 was initially a deposit, it be- general provisions of Sec. 263A, in-
hear only the cases that Congress has came a payment when the IRS applied cluding special rules and exceptions
explicitly identified as falling within its it to his outstanding tax liabilities. for resellers, and provides insight into
jurisdiction. Congress has given the Tax The Tax Court, therefore, concluded elements of a reseller’s uniform capital-
Court limited review of IRS collection the case was moot because “[p]etitioner ization calculation that may be areas of
activities. Before the IRS can make a has received all the relief that section focus during an IRS examination.
levy and after it files a notice of lien, 6330 authorizes the Tax Court to
the IRS must give the taxpayer a right provide.” Because the $625,000 was Background
to a Collection Due Process hearing deemed a payment instead of a deposit, In general, Sec. 263A and the regula-
before an IRS Appeals Officer (Sec. Ahmed would have to file an adminis- tions thereunder require taxpayers that
6330). The Appeals officer will review trative claim (and possibly file a refund are resellers to capitalize direct costs
the file and determine whether the suit in court) to attempt to receive and an allocable share of indirect costs
collection activity should be upheld. If a refund. to property acquired for resale. Regs.
the Appeals officer upholds the IRS’s Sec. 1.263A-3(a)(1) defines a reseller as
actions, the taxpayer can petition for Analyze the facts and a retailer, wholesaler, or other taxpayer
review in the Tax Court. Sec. 6330(d) circumstances that acquires certain property for resale.
(1) grants the Tax Court jurisdiction When taxpayers are facing protracted Regs. Sec. 1.263A-3 describes the costs
over those cases, but the Tax Court can tax disputes with the IRS, they should that a reseller is required to capitalize
only consider whether the proposed consider making a remittance to stop into inventory under Sec. 263A and
collection activity is appropriate. The interest and penalties from continuing provides a simplified resale method for
Tax Court does not have the jurisdic- to accrue. Whether the taxpayer should determining additional Sec. 263A costs
tion to determine whether there is an make a deposit or an advance payment allocable to ending inventory (see Regs.
overpayment; likewise, it cannot order will depend on the specific facts and Sec. 1.263A-3(d)).
a refund or credit of taxes in a proceed- circumstances. Although both deposits In November 2018, the IRS and
ing brought under Sec. 6330. Once the and advance payments will stop interest Treasury issued final regulations
IRS concedes there is no tax liability on from accruing, they have key differ- under Sec. 263A (T.D. 9843), which
which to collect, the case becomes moot ences that taxpayers should consider were generally effective for tax years
and the Tax Court loses its jurisdiction before deciding which one to use. beginning on or after Nov. 20, 2018,
(Greene-Thapedi, 126 T.C. 1 (2006)). From John Keenan, J.D.; Matt
Ahmed argued the case was not Cooper, J.D.; and Teresa Abney, J.D.,
moot because the $625,000 was Washington, D.C.
merely a deposit and not a payment
of the tax. Although Ahmed labeled
the $625,000 a deposit submitted Tax Accounting
pursuant to Sec. 6603 and Rev. Proc.
2005-18, he conceded that it was not a LB&I provides insight into
valid deposit under those rules. To be Sec. 263A computations for
a deposit under Sec. 6603, the remit- resellers
tance must be made before the IRS On Oct. 1, 2021, the IRS Large Busi-
assesses the tax. Here, Ahmed remitted ness and International (LB&I) Divi-
the $625,000 after the IRS assessed sion issued guidance in the form of a
the tax. However, Ahmed argued the practice unit, Examining a Reseller’s
$625,000 was still a deposit under cases 263A Computation, providing examin-
IMAGE BY BILL OXFORD/ISTOCK man, 323 U.S. 658 (1945)). The Tax for reviewing a reseller’s Sec. 263A
ing agents relevant law and audit steps
that predated Sec. 6603 (e.g., Rosen-
Court summarily rejected that argu-
computations with respect to inventory
held for resale. This is one of a series of
ment; the court stated that those cases
were “readily distinguishable” because
LB&I practice units released in 2021
and late 2020 dealing with various
in each case the taxpayer made the
aspects of the uniform capitalization
remittance before the IRS assessed the
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