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information for its readership and running advertisements for its
clients), and that it was not the type of merchandiser envisioned
by the inventory regulations. Id. The court found that even
though the taxpayer sold an extremely perishable commodity (a 2-
day-old newspaper is stale), and therefore it had virtually no
inventories of finished goods, the taxpayer was required to
account for inventories because the sale of merchandise was an
income-producing factor and there was a significant fluctuation
of newsprint and ink on hand, which had a significant effect on
taxable income. Id. at 790-791.
The Court of Appeals also stated that in deciding whether a
taxpayer must adopt inventories, the size of the account and the
fluctuations are relevant. Id. at 791. After discussing the
language in section 1.471-1, Income Tax Regs., that requires
inventories in “every case in which the * * * sale of merchandise
is an income-producing factor”, the court said:
Nevertheless, given that the ultimate goal of the
regulation is “to reflect taxable income correctly,”
id., we hold that purpose is not served where
inventories and inventory fluctuations would be de
minimis and have virtually no effect on the reflection
of income. * * * On the other hand, if either the
absolute level of the inventory account or its
fluctuation during the year would be substantial, then
the taxpayer must use inventories if it meets the other
requirements of section 1.471-1. [Id.]
See also Ezo Products v. Commissioner, 37 T.C. 385, 393 (1961).
Similarly, in Asphalt Prods. Co. v. Commissioner, 796 F.2d
at 849, the court said, in dicta:
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