Lovely Cosmetics Incorporated incurred $785,000 research costs on the development of its formula for a new line of face creams. Lovely obtained a 17-year patent on the formula from the U.S. government. Which of the following statements is true?

Multiple Choice

• Lovely is allowed to deduct the $785,000 research costs.

• Lovely's tax basis in its patent is $785,000.

• The $785,000 cost results in a favorable book/tax difference.

• Both Lovely is allowed to deduct the $785,000 research costs and Lovely's tax basis in its patent is $785,000 are true.