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(2d Cir. 1949), affg. a Memorandum Opinion of this Court, as
support for their contention that AEI, as a broker or agent, is
not required to maintain inventories. As we stated in Epic
Metals Corp. & Subs. v. Commissioner, supra, the U.S. Court of
Appeals for the Second Circuit decided Simon on the ground that
the taxpayer was properly characterized as a broker or commission
merchant because his margin for profits and operating expenses
was the 5-percent "commission" or "trade discount" allowed him by
the manufacturers. In the present case, as in Epic Metals, AEI
does not derive its profit from commissions or trade discounts.
Rather, AEI's profit is determined by the difference between the
price it pays vendors or subcontractors for the electronic
materials and the price at which it sells the electronic
materials to its customers. Thus, the facts of this case are
fundamentally different from those of Simon. See Epic Metals
Corp. & Subs. v. Commissioner, supra.
Based on our review of the entire record, we hold that AEI
had title to the electronic materials and is required to maintain
inventories. Indeed, AEI determined gross income by subtracting
COGS from total sales. We conclude that AEI is required to use
the accrual method of accounting, and respondent did not commit
an abuse of discretion under section 446. See sec. 1.446-
1(c)(2)(i), Income Tax Regs.
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