Uniform Capitalization (UNICAP) Rule Section 263A: Simplified Production Method and Simplified Service Cost Method Are Not So Simple

In concept, the uniform capitalization (UNICAP) rules of the Internal Revenue Code Section 263A appear straightforward and not too difficult to understand: producers of tangible property (except those specifically excluded) must include in inventory the indirect costs as well as the direct costs of producing that inventory.  But so many have difficulty in applying this important tax rule because of confusing and ill-defined terminology throughout Section 263A and its related regulations.  This article, “How to Implement the Uniform Capitalization (UNICAP) Rule of Section 263A–Simplified Production Method and Simplified Service Cost Method Are Far from Simple“, defines precisely the terms utilized in the required calculations of the simplified service cost and simplified production methods, the recommended approach of capitalizing indirect costs to inventory under UNICAP.

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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One Response to Uniform Capitalization (UNICAP) Rule Section 263A: Simplified Production Method and Simplified Service Cost Method Are Not So Simple

  1. Patsy says:

    I read the blog on Sec 263a capped inventory expenses. What is the entry? Would that be a credit to the Operating expenses since we have to debit the Inventory for the addition?

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