- 12 -
1984) (newsprint and ink which cost 17.6 percent of the
taxpayer's total receipts were a substantial income-producing
factor).
Ward provided many services to petitioner's customers in
connection with selling farm products to them. However,
businesses that provide both services and merchandise may be
required to use inventories. Knight-Ridder Newspapers, Inc. v.
United States, supra at 790 n.16; Fred H. McGrath & Son, Inc. v.
United States, 549 F. Supp. 491 (S.D.N.Y. 1982) (funeral
services); sec. 1.471-1, Income Tax Regs.
We conclude that buying and selling merchandise was a
substantial income-producing factor for petitioner.
C. Whether Petitioner Qualified as a Farmer for Purposes of
Using the Cash Method of Accounting
A farming business may use the cash method of accounting to
compute its taxable income. Sec. 448(b)(1). Petitioner contends
that it qualifies as a farming business because it was
significantly involved in the growing process and bore a
substantial risk of loss from the growing process. Maple Leaf
Farms, Inc. v. Commissioner, 64 T.C. 438, 448 (1975). We
disagree.
For purposes of section 448(b)(1), the "farming business" is
the trade or business of farming. Secs. 263A(e)(4),
448(d)(1)(A). A taxpayer is a farmer if it cultivates, operates,
or manages a farm for profit, either as owner or tenant. See
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