The U.S. Tax Court issued a decision November 12, 2009 that found TG Missouri (“TG”), an automotive parts manufacturer, properly included in research expenses, supply expenses related to production molds produced by a third party, in possession of TG, but sold to customers.
TG manufactures injection-molded products such as steering wheels, air bags, and body side molding for automotive manufacturers. TG uses production molds to produce the parts. TG has some of the production molds produced by a third party.
Once TG contracts with their customer to produce a product, they enter into a contract with the customer to develop a production mold to produce the product. Under the terms of the contract, TG is only entitled to payment if they can successfully design and build a mold capable of producing sample product and the customer accepts the products. TG sometimes hires a third party tool maker to produce a production mold based on TG