Galedrige Construction, Inc. - Page 5

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               In performing its contracts, petitioner took delivery of the           
          materials directly from the asphalt supplier.  Petitioner's                 
          driver picked up the asphalt and took it directly to the job                
          site.  The asphalt had to be laid within 2 to 5 hours from the              
          time it was picked up from the plant, or it would become rock               
          hard and have to be thrown away.  Petitioner had no way to extend           
          the time that asphalt is in an emulsified condition.  Once the              
          asphalt hardened, it could not be melted and reused; nor could it           
          be returned for credit to the asphalt supplier.                             
               Petitioner generally worked on only one job at a time,                 
          lasting a week or less.  When the job was finished, petitioner              
          billed the customer and created an accounts receivable on its               
          books.  The asphalt company sent petitioner an invoice, usually             
          due within 30 days, which petitioner paid only after it received            
          payment from its customer.  Although petitioner, not the                    
          customer, usually paid the supplier, there were some customers              
          who paid the supplier directly for the asphalt used on a job.               
          This was an uncommon event, however, that did not occur during              
          the years at issue.  Occasionally, customers issued a joint check           
          to petitioner and the supplier so that, in effect, the customer             
          paid the supplier.                                                          
               Petitioner's asphalt costs for the tax years 1989 and 1990             
          were $930,960 and $855,566, respectively.  Petitioner deducted              
          the cost of the asphalt as a supplies expense on its tax returns            
          for the years at issue.                                                     




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