- 11 -
A. Whether Petitioner Is Required To Maintain Inventories
Petitioner prints calendars, napkins, greeting cards, and
forms according to the specifications of its customers.
Petitioner does not maintain a stock of paper or other materials
because each job requires paper of a different weight and
finish. Petitioner orders the types of paper and supplies
needed for a job after the customer's order is placed. Usually
when a job is completed, any materials left over are scraps and
are not used for other jobs.
Respondent asserts that petitioner's production, purchase,
and sale of merchandise is an income-producing factor, and
therefore petitioner must account for inventories. Petitioner
argues that it provides a service, and the printed items it
sells to its customers and the materials it uses are not
merchandise. Petitioner argues, therefore, it is not required
to maintain inventories.
Although not specifically defined in the Internal Revenue
Code or regulations, courts have found that the term
"merchandise", as used in section 1.471-1, Income Tax Regs., is
defined as an item held for sale. Wilkinson-Beane, Inc. v.
Commissioner, supra at 354-355; Tebarco Mechanical Corp. v.
Commissioner, T.C. Memo. 1997-311; Galedrige Constr., Inc. v.
Commissioner, T.C. Memo. 1997-240; Honeywell Inc. & Subs. v.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011