T.C. Memo. 1997-240
UNITED STATES TAX COURT
GALEDRIGE CONSTRUCTION, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21463-94. Filed May 22, 1997.
P, an asphalt paving contractor, did not account for
inventories and kept its books and filed its returns on the
cash receipts and disbursements method of accounting. R
determined that the sale of merchandise was an income-
producing factor in P's business, that P must, pursuant to
sec. 1.471-1, Income Tax Regs., account for inventories, and
that P must use the accrual method of accounting to clearly
reflect income.
Held: Emulsified asphalt, which becomes useless in less
than 5 hours, is not merchandise held for sale by P. Held,
further, P has no inventories; thus, sec. 1.471-1, Income
Tax Regs., does not apply to P for the taxable years at
issue. Held, further, P's method of accounting clearly
reflects income; R abused her discretion in requiring P to
use the accrual method of accounting.
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