114 T.C. No. 16 UNITED STATES TAX COURT RACMP ENTERPRISES, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 23954-97. Filed March 30, 2000. P is a construction contractor that enters into contracts to construct, place, and finish concrete foundations, driveways, and walkways for real property developers. P uses the cash method to recognize income and to expense the cost of concrete and other materials. R determined that the material P uses in providing service to its clients is "merchandise" under sec. 1.471-1, Income Tax Regs., and that P must report its income on the accrual method of accounting. Held: P's contract to provide labor and material to a real property developer is a contract to provide service, and the material is an indispensable and inseparable part of the provision of that service. See Osteopathic Med. Oncology & Hematology, P.C. v. Commissioner, 113 T.C. 376, 384 (1999). Held, further, material that is provided by a construction contractor according to the terms of a contract that requires the provision of labor and material, and which, when combined with other tangible personal property, loses its separate identity to become an integral and inseparable part of a building or other real property, is not merchandise within thePage: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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