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emulsified asphalt to be a factor that must be considered in our
analysis of whether the emulsified asphalt is "merchandise".8
Although not specifically defined in the Internal Revenue
Code (the Code) or the regulations, courts have held that
"merchandise", as used in section 1.471-1, Income Tax Regs., is
an item acquired and held for sale. See, e.g., Wilkinson-Beane,
Inc. v. Commissioner, supra at 354-355 (a canvassing of
authorities in the accounting field yields several definitions,
such as "goods purchased in condition for sale," "goods awaiting
sale," "articles of commerce held for sale," and "all classes of
commodities held for sale"; the common denominator seems to be
that the items in question are merchandise if held for sale);
Honeywell Inc. v. Commissioner, T.C. Memo. 1992-453 (rotable
spare parts are merchandise if they were acquired and held for
sale). Whether an item was acquired and held for sale is
governed by the substance of the transaction and not its form.
Honeywell Inc. v. Commissioner, supra. Thus, to determine whether
an item is "merchandise", we must take into account the
particular facts and circumstances of the taxpayer in each case
and the manner and context in which the taxpayer operates the
8 In construing the word "merchandise" we apply the rule
that "'The natural and ordinary meaning of words will be applied
[in construing tax statutes] unless the Congress has definitely
indicated an intention that they should be otherwise construed'".
Wilkinson-Beane, Inc. v. Commissioner, 420 F.2d 352, 354 (1st
Cir. 1970) (quoting Huntington Sec. Corp. v. Busey, 112 F.2d 368,
370 (6th Cir. 1940)), affg. T.C. Memo. 1969-79.
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