Tax Court: ADVO Ineligible for Domestic Production Deduction

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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. 9, 10/24/13).
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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