Tax Court: ADVO Ineligible for Domestic Production Deduction
Oct. 24 —
The U.S. Tax Court held that
a direct advertising business that used third-party printers to produce
advertising materials for its clients wasn't entitled to the domestic production
deduction, because it didn't have the benefits and burdens of ownership of the
materials (ADVO, Inc. v. Commissioner
, T.C., No. 17247, 141 T.C. No.
Judge Robert A. Wherry Jr., author of the division opinion, said
the issue of “how tax code Section 199 applies to U.S. corporations that
manufacture products through agreements with contract manufacturers” was one of
first impression for the Tax Court.
The taxpayer, ADVO Inc., distributed direct advertising material to
residential recipients in the U.S. through the U.S. Postal Service using either
materials supplied by the clients or materials produced by third-party
commercial printers. The ownership of the materials produced by the third-party
printers was at issue in this case.
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