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etc., for each flight. These charges varied from $450 per hour
to $760 per hour during 1988 and 1989.
Investments’ total costs of owning, operating, and
maintaining its airplane, exclusive of pilot salary, during 1988
and 1989 were $218,452.14 and $142,427.85, respectively.
Investments collected a separate rental fee from Pioneer, Fiesta
Lincoln, Fiesta Dodge, Heritage, Ranch, and Sunland for the use
of its airplane during 1988 and 1989. The airplane rental fees
collected by Investments during 1988 and 1989 were $48,048.50 and
$37,674, exclusive of meals, lodging, etc., respectively.
OPINION
The issues in the instant case fall into two principal
groups which we will discuss under separate headings: Accounting
for Inventories and Airplane Expenses.
Accounting for Inventories
To set the stage for our review of respondent's
determinations, a discussion of the dollar-value LIFO method of
inventory accounting used by Investments to determine its ending
inventory is helpful.
A. Dollar-Value LIFO
Section 471 requires the use of inventories whenever
necessary in order to clearly reflect income. Sec. 471(a); Fox
Chevrolet, Inc. v. Commissioner, 76 T.C. 708, 719 (1981). The
regulations define “necessary” as being whenever the production,
purchase, or sale of merchandise is an income-producing factor.
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