Question

What was the court's logic in denying Harborside's argument that they were entitled to Sec. 263A capitalization of indirect expenses in the determination of cost of goods sold? O A. Drug traffickers can capitalize indirect expenses as provided by Sec. 263A. o B Producers must capitalize the cost of direct labor, direct material, and indirect production costs. o C. Producers can include and deduct an appropriate portion of management costs. o Congress is limited to taxing gross income of drug traffickers which is gross receipts minus direct costs or the actual costs to purchase inventory.

Answer 1

The court's logic in denying Harborside's argument that they were entitled to Sec. 263A capitalization of indirect expenses in determination of cost of goods sold was:

B. Producers must capitalize the cost of direct labor, direct material, and indirect production costs.

Explanation:

The court held that Harborside was a medical dispensary and not a producer of marijuana so it can only include the purchase price and freight charges in cost of goods sold.