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petitioner should be required to use inventories for tax
purposes.
By regulation, the Secretary has determined that inventories
are necessary if the production, purchase, or sale of merchandise
is an income-producing factor. Sec. 1.471-1, Income Tax Regs.
Although not specifically defined in the Internal Revenue Code or
the regulations, courts have held that "merchandise", as used in
section 1.471-1, Income Tax Regs., is an item acquired and held
for sale. See, e.g., Wilkinson-Beane, Inc. v. Commissioner, 420
F.2d 352, 354-355 (1st Cir. 1970), affg. T.C. Memo. 1969-79.
A taxpayer that has inventories is required to use the
accrual method of accounting, unless it can show that the use of
another method (here, the cash method) would produce a
substantial identity of results and that the Commissioner's
determination requiring a change is an abuse of discretion.
Ansley-Sheppard-Burgess Co. v. Commissioner, 104 T.C. 367, 377
(1995); see also Knight-Ridder Newspapers, Inc. v. United States,
743 F.2d 781, 789, 791-793 (11th Cir. 1984); Wilkinson-Beane,
Inc. v. Commissioner, supra.
We find as fact that emulsified asphalt, which becomes
useless in approximately 3 hours, is not merchandise held for
sale by petitioner. See Galedrige Constr., Inc. v. Commissioner,
T.C. Memo. 1997-240. We further find as fact that petitioner has
no inventories; thus, section 1.471-1, Income Tax Regs., does not
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