Advo, Inc. & Subsidiaries, 141 T.C. No. 9 (2013)

(petitioner is direct mail advertising company that distributed direct mail advertising in U.S. to potential customers for products and services sold by petitioner's clients; petitioner supplied advertising material that it had contracted with third party commercial printers for printing; petitioner claimed DPAD (I.R.C. Sec. 199) on material that petitioner supplied which included rough art, reprint with changes and client-supplied art; petitioner retained ownership of intellectual property for rough art and reprints with changes; printing agreements contained "risk of loss" provision stating that risk of loss passed to petitioner upon delivery to petitioner's branch facility; petitioner assembled and shipped finished product; petitioner claimed that gross receipts from printed direct mail advertising and distribution products qualified as DPGR, but IRS claimed that petitioner's use of third-party printers eliminated "manufacturing" aspect for petitioner; issue was whether petitioner manufactured advertising mail packages or produced only intangible property used by printers to produce tangible personal property in the form of advertising mail packages; under Treas. Reg. Sec. 1.199-3(f)(1), court determined that petitioner did not bear benefits and burdens of ownership; petitioner had to be exclusive owner of underlying property with benefits and burdens of ownership such that petitioner was only taxpayer that could claim DPAD; multiple factor weighed in favor of government - legal title passing; how parties treated transaction; whether rights of possession vested in purchaser and which party controlled production process, which party received profits from operation and sale of property and whether petitioner actively and extensively participated in management and operations of activity; petitioner did not bear benefits and burdens of ownership while advertising material was printed and, thus, no MPGE present and no DPGR available).