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In performing its paving contracts, petitioner takes
delivery of the asphalt when its temperature is between 300 and
320 degrees Fahrenheit. If the asphalt is not on the ground and
rolled by the time it is 150 degrees, it can no longer be used.
Under normal circumstances, the window of opportunity is
approximately 3 hours.
Petitioner has approximately 100 to 150 jobs or contracts
per year of varying size and complexity. Generally, petitioner
does not get paid until it completes a job. When a job is
finished, petitioner bills the customer and requires payment
typically within 30 days.
OPINION
Respondent determined that for the taxable years 1990, 1991,
and 1993,2 petitioner's asphalt was merchandise that was an
income-producing factor, that petitioner therefore had
inventories, and thus it must use the accrual method of
accounting in order to clearly reflect taxable income.
The principal issue for decision is whether it was an abuse
of respondent's discretion to require petitioner to change from
the cash method of accounting to the accrual method of
accounting. Subsumed in this issue is the question of whether
2 Although the statutory notice of deficiency in the
instant case covered 1987, 1988, 1990, 1991, and 1993, respondent
did not change petitioner's method of accounting for 1987 and
1988.
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Last modified: May 25, 2011