12 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 accruablePage: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
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