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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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