- 20 - If the temporary and rather insignificant increase in inventories of raw materials had been the only basis for the Commissioner’s determination, we would have been inclined to find an abuse of discretion. We do not construe the Code provisions and regulations relating to inventories in the absolute terms adopted by the Commissioner and the Tax Court. * * * In contrast to the facts of Knight-Ridder Newspapers, Inc., petitioner has no raw materials inventory; thus, there is no fluctuation in either the absolute value or the value relative to taxable income. Furthermore, we are unable to find as a fact that the emulsified asphalt is merchandise. Thus, we find no factual or legal indicators in Knight-Ridder Newspapers, Inc. that lead us to conclude that petitioner must use an inventory method of accounting. Our analysis of the material at issue, and our finding that under the facts and circumstances of this case the ephemeral quality of the emulsified asphalt bars its inclusion in the class of goods or commodities held for sale as "merchandise", support a conclusion that is different from, but not contrary to, the holdings in Wilkinson-Beane, Inc. and its progeny. We do not interpret section 1.471-1, Income Tax Regs., to require that if a material is an income-producing factor it must, per se, be "merchandise". The section provides that "inventories * * * are necessary in every case in which the production, purchase, or sale of merchandise is an income-producing factor". Sec. 1.471-1, Income Tax Regs. (emphasis added). Thus, we find that the emulsified asphalt is a supply consumed in the operationPage: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next
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