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the day is not dispositive of the issue of whether it must
maintain an inventory.
It is equally clear from J.P. Sheahan Associates, Inc.,
that before the Commissioner may require the taxpayer to utilize
an inventory method of accounting, the taxpayer must (1) produce,
purchase, or sell merchandise (2) that is an income-producing
factor. Thus, to find that inventories are necessary, we must
first find as fact that petitioner produces, purchases, or sells
merchandise. Honeywell Inc. v. Commissioner, supra. If so, then
we must find that the production, purchase, or sale of that
merchandise is an "income-producing factor". Wilkinson-Beane,
Inc. v. Commissioner, 420 F.2d at 355; Honeywell Inc. v.
Commissioner, supra; sec. 1.471-1, Income Tax Regs.
The fact that petitioner had no emulsified asphalt on hand
at the end of the day is not dispositive of whether it must use
an inventory method of accounting. We think, however, that there
is a significant difference between a taxpayer who has no
material on hand at the end of the year because it was returned
to the supplier for credit, see, e.g., J.P. Sheahan Associates,
Inc. v. Commissioner, supra, and a taxpayer who has no material
on hand at the end of the day because of the ephemeral quality of
the material. Thus, we consider the ephemeral quality of the
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