(defendant, shareholder of S corporation engaged in production process for assembling of gift baskets for food and wine items for sale, claimed flow-through domestic production activities deduction (DPAD); defendant claimed that designing gift basket was complicated, multi-step process involving selection of sizes and colors, materials, ensuring quality control and reviewing packaging; actual production of baskets were outsourced; food items in baskets were either purchased as individually wrapped packages or, if not, are repackaged by contract-hire co-packer; defendant has workers function assembly-line style to produce the baskets into “gift towers”; no DPAD claimed on S corporation’s original (2005) return, but DPAD claimed on 2009 amended return in amount of $275,982, and defendant claimed 75 percent of S corporation’s DPAD on own return; refund paid by IRS and IRS later sued to recover refunds; IRS claimed that S corporation only packaged and repackaged items in baskets and gift towers and was not entitled to DPAD; defendant claimed that S corporation engaged in manufacturing and production of gift baskets and towers; court determined that activity involved qualified manufacturing or production in accordance with Treas. Reg. §1.199-3(e)(2); new product created with different demand).