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supplier (i.e., Timberline) holds the goods, relying on Gas Light
Co. v. Commissioner, T.C. Memo. 1986-118. Petitioner argues that
the house kits sold by Eagle were held by the taxpayer as
required by section 1.451-5(a)(1)(i), Income Tax Regs., even
though they were manufactured by Timberline and shipped directly
to Eagle's customers.
We disagree. In Gas Light Co. v. Commissioner, supra, we
held that, under section 1.451-5(a), Income Tax Regs., security
deposits received by a utility company were advance payments
relating to inventoriable goods. In that case, the taxpayer
contended that it never had in its inventory natural gas which
was transmitted by pipeline. We rejected that contention; we
said that natural gas transmitted through pipelines becomes
inventory when it enters the pipeline, relying on Northern
Natural Gas Co. v. Commissioner, 44 T.C. 74, 77-79 (1965), affd.
362 F.2d 781 (8th Cir. 1966), in which the taxpayer admitted that
it owned pipeline gas and was required to use inventories in
computing income. Here, it is undisputed that Eagle did not at
any time own or have title to the house kits; Timberline did.
Thus, unlike the taxpayer in Gas Light Co. v. Commissioner,
supra, Eagle had no inventory.
We conclude that the payments at issue were not advance
payments under section 1.451-5(a)(1)(i), Income Tax Regs.,
because Eagle did not hold the house kits primarily for sale to
customers in the ordinary course of business.
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