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Merchandise should be included in the inventory only
if title thereto is vested in the taxpayer.
Accordingly, the seller should include in his
inventory goods under contract for sale but not yet
segregated and applied to the contract * * *, but
should exclude from inventory goods sold * * * title
to which has passed to the purchaser. A purchaser
should include in inventory merchandise purchased
(including containers), title to which has passed to
him, although such merchandise is in transit or for
other reasons has not been reduced to physical
possession, but should not include goods ordered for
future delivery, transfer of title to which has not
yet been effected. * * *
Petitioner holds title to goods until they are shipped to
the purchaser and bills the customer after the order is
shipped. Therefore, petitioner does not hold title to work in
process for jobs completed and shipped and work in process for
jobs ready to bill. Under the regulations, such goods are not
properly included in valuing petitioner's inventory, and it was
improper for respondent to do so.
b. Respondent's Use of Estimated Market Value
"The bases of valuation most commonly used by business
concerns and which meet the requirements of section 471 are (1)
cost and (2) cost or market, whichever is lower." Sec. 1.471-
2(c), Income Tax Regs. Section 1.471-4(c), Income Tax Regs.,
provides:
Where the inventory is valued upon the basis of cost
or market, whichever is lower, the market value of
each article on hand at the inventory date shall be
compared with the cost of the article, and the lower
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