David K. Straight - Page 12

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          reported that it used the same method of accounting for book and            
          tax purposes.  Eagle reported that it had no inventory at the               
          beginning and end of 1990, 1991, and 1992.                                  
          C.   The 30-Day Letter                                                      
               Before June 1993, respondent's revenue agent audited                   
          petitioner's 1990 and 1991 tax years.  On June 25, 1993,                    
          respondent's revenue agent prepared a 30-day letter.  It                    
          contained a detailed explanation of respondent's position                   
          relating to Eagle's method of accounting for customer deposits              
          for 1990 and 1991.  The 30-day letter stated in part as follows:            
                    Treasury Regulation 1.451-5(a) deals with advance                 
               payments for a taxpayer using an accrual method of                     
               accounting for purchases and sales or a long-term                      
               contract method of accounting, pursuant to, and to be                  
               applied against, an agreement:  (i) for the sale or                    
               other disposition in a future taxable year of goods                    
               held by the taxpayer primarily for sale to customers in                
               the ordinary course of his trade or business, or (ii)                  
               for the building, installing, constructing, or                         
               manufacture by the taxpayer of items where the                         
               agreement is not completed within such taxable year.                   
               The taxpayer does not qualify under (i) since the                      
               corporation has no inventory and is never at risk for                  
               loss during shipment.  The corporation merely acts as a                
               broker for homes manufactured by Timberline Building                   
               Systems, Inc.  Neither does the business qualify under                 
               (ii) since it does not build, construct, install, or                   
               manufacture the modular homes.  Costs are not                          
               accumulated until income is recognized, rather some                    
               costs related to the sale such as commissions are                      
               expensed before the income is recognized.                              
                    Since the deposits do not qualify as "advance                     
               deposits", they cannot be included in income as                        
               provided in Treasury Regulation 1.451-5(b)(1)(ii)(a)                   
               namely "in the taxable year in which properly accruable                







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