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and seller of paper box-board maintained no inventory, was not
engaged in business of "merchandising" requiring use of accrual
method in computing income for Federal income tax purposes).13
If petitioner made "a complete listing of merchandise or stock on
hand, raw materials, etc.", either at the beginning or end of any
day, there could be nothing to list; thus, the amount and value
of petitioner's opening and closing inventory would always be
zero.14 Therefore, we hold that petitioner does not maintain
inventories.
C. Accrual Method of Accounting
Petitioner used the cash receipts and disbursements method
of accounting (cash method) to report its income for the taxable
13 Interpreting the requirements of Reg. 111, sec.
29.22(c)-1. For the taxable year before the court, Reg. 111,
sec. 29.22(c)-1 provided:
Need of Inventories.--In order to reflect the net income
correctly, inventories at the beginning and end of each
taxable year are necessary in every case in which the
production, purchase, or sale of merchandise is an income-
producing factor. * * * Merchandise should be included in
the inventory only if title thereto is vested in the
taxpayer. Accordingly, the seller should include in his
inventory goods under contract for sale but not yet
segregated and applied to the contract and goods out upon
consignment, but should exclude from inventory goods sold
(including containers), title to which has passed to the
purchaser. A purchaser should include in inventory
merchandise purchased (including containers), title to which
has passed to him, although such merchandise is in transit
or for other reasons not been reduced to physical
possession, but should not include goods ordered for future
delivery, transfer of title to which has not yet been
effected.
14 Although cognizant of this fact, respondent proposes to
require petitioner to use an inventory method of accounting "as
if" petitioner had merchandise or stock on hand.
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