David K. Straight - Page 27

                                         27                                           
               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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