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defined as an item acquired and held for sale. Wilkinson-Beane,
Inc. v. Commissioner, 420 F.2d 352, 354-355 (1st Cir. 1970),
affg. T.C. Memo. 1969-79; Galedrige Const., Inc. v. Commissioner,
T.C. Memo. 1997-240; Honeywell Inc. v. Commissioner, T.C. Memo.
1992-453, affd. without published opinion 27 F.3d 571 (8th Cir.
1994). Whether an item was acquired and held for sale is
governed by the substance of the transaction and not its form.
Galedrige v. Commissioner, supra; Honeywell Inc. v. Commissioner,
supra. Thus, in deciding whether the materials petitioner
acquires to perform its installation contracts are merchandise,
we examine the facts and circumstances of the case. Wilkinson-
Beane, Inc. v. Commissioner, supra; Galedrige v. Commissioner,
supra; Thompson Elec., Inc. v. Commissioner, T.C. Memo. 1995-292;
Honeywell Inc. v. Commissioner, supra; J.P. Sheahan Associates,
Inc. v. Commissioner, T.C. Memo. 1992-239.
Material Purchases and Warehouse Items are Merchandise
Petitioner asserts that it was an abuse of respondent's
discretion to place petitioner on an accrual method of accounting
for income tax reporting purposes, because petitioner does not
have merchandise held for sale in its business, and therefore it
does not have to use inventories. In support of this contention,
petitioner argues that while the section 1.471-1, Income Tax
Regs. does not define inventory, it imposes one critical
requirement before a taxpayer is permitted to include an item of
merchandise in inventory, that requirement being the vesting of
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