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An accrual method taxpayer may defer income on advance
payments received for (a) the sale in a future taxable year of
goods held by the taxpayer primarily for sale to customers in the
ordinary course of business; or (b) the building, installing,
constructing, or manufacturing by the taxpayer of items where the
agreement is not completed within the taxable year. Sec. 1.451-
5(a), Income Tax Regs.
Respondent contends that petitioner may not use section
1.451-5, Income Tax Regs., because Eagle did not hold the house
kits for sale to customers, or build, construct, install, or
manufacture the kits as required by section 1.451-5(a)(1), Income
Tax Regs.
3. Whether Eagle Held the House Kits Primarily for Sale to
Customers in the Ordinary Course of Business
Respondent contends that Eagle did not hold the house kits
for sale to customers; i.e., Eagle had no inventory. Petitioner
contends that it need not own or possess the inventory if its
8(...continued)
(a) In the taxable year in which properly accruable
under the taxpayer's method of accounting for tax purposes
if such method results in including advance payments in
gross receipts no later than the time such advance payments
are included in gross receipts for purposes of all of his
reports (including consolidated financial statements) to
shareholders, partners, beneficiaries, other proprietors,
and for credit purposes, or
(b) If the taxpayer's method of accounting for purposes
of such reports results in advance payments (or any portion
of such payments) being included in gross receipts earlier
than for tax purposes, in the taxable year in which
includible in gross receipts pursuant to his method of
accounting for purposes of such reports.
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