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the Commissioner had not committed an abuse of discretion in
rejecting the taxpayer’s use of inventories and the LIFO method.
In Homes by Ayres v. Commissioner, supra, the taxpayer used
a “square footage method” by which the total cost of developing
and constructing houses on a tract of raw land was allocated to
each lot based on the number of square feet of floor in each of
the completed houses. The taxpayers filed applications to use
the LIFO inventory method to value completed houses and partially
completed houses, but the taxpayer did not contend that it should
be allowed to apply the inventory method to land costs. We held
that each house and lot constitutes a parcel of real property,
and that, because real property is not “merchandise” within the
meaning of section 1.471-1, Income Tax Regs., the taxpayers were
not “permitted or required to maintain inventories” and thus
could not elect to use the LIFO method.
Not since our predecessor, the Board of Tax Appeals, decided
Atlantic Coast Realty Co. v. Commissioner, supra, have we had
occasion to hold that a developer may not account for land costs
using the LCM method. But underpinning each of the three above-
discussed cases is the well-settled rule that land costs may not
be inventoried because the Secretary does not permit or require
land costs to be inventoried and because the use of inventory
accounting for land does not clearly reflect income. Moreover,
there are other reasons to disallow the use of inventory methods
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