- 12 -
chemotherapy drugs are merchandise. See Wilkinson-Beane, Inc. v.
Commissioner, supra; Honeywell Inc. v. Commissioner, supra; sec.
1.471-1, Income Tax Regs.
The statute and regulations do not define the words
“merchandise” or “inventory”, nor do they clearly distinguish
between "inventory" and “materials and supplies” that are not
actually consumed and remain on hand. We have held that
“merchandise”, as used in section 1.471-1, Income Tax Regs., is
an item acquired and held for sale. See Wilkinson-Beane, Inc. v.
Commissioner, T.C. Memo. 1969-79. Upon appeal, the Court of
Appeals for the First Circuit agreed, stating:
A canvassing of authorities in the accounting field
yields several definitions, such as “goods purchased in
condition for sale,” “goods awaiting sale,” “articles
of commerce held for sale,” and “all classes of
commodities held for sale.” Clearly, the meaning of
the term must be gathered from the context and the
subject. * * * The common denominator, however, seems
to be that the items in question are merchandise if
held for sale. [Wilkinson-Beane, Inc. v. Commissioner,
420 F.2d at 354-355; citations omitted.]
Whether an item is acquired and held for sale is governed by
the substance of the transaction and not its form. See Honeywell
Inc. v. Commissioner, supra. We take into account the particular
facts and circumstances of the taxpayer in each case and the
manner and context in which the taxpayer operates the business at
hand. See Wilkinson-Beane, Inc. v. Commissioner, supra; Thompson
Elec., Inc. v. Commissioner, T.C. Memo. 1995-292; Honeywell Inc.
v. Commissioner, supra; J.P. Sheahan Associates, Inc. v.
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011