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Transwestern Pipeline Co. v. United States, 225 Ct. Cl. 399, 639
F.2d 679, 681 (1980) (distinguishing Thor Power Tool Co. v.
Commissioner, supra, because in that case "it was an uncontested
fact that the property in issue consisted of an inventory of
goods held for sale").
Respondent determined that the material petitioner used in
its construction activity was merchandise that was income
producing, and, therefore, petitioner must use the accrual method
of accounting to clearly reflect its income. Petitioner asserts
that it is in the business of providing service and that its
clients purchase its expertise in constructing, placing, and
finishing foundations, driveways, and walkways, not merchandise.
Therefore, petitioner contends that its use of the cash method of
accounting is proper. We agree with petitioner.
Issue 1. Whether the Material Provided by Petitioner in
Accordance With Its Contract To Construct and Place
Concrete Foundations, Driveways, and Walkways Is
Merchandise
Whether petitioner is required to report its income on the
accrual method of accounting instead of the cash method depends
on whether petitioner is in the business of selling merchandise
to customers in addition to providing service or whether the
material provided by petitioner is a supply that is incidental to
the provision of the contracted service. See Wilkinson-Beane,
Inc. v. Commissioner, 420 F.2d 352, 353-354 (1st Cir. 1970),
affg. T.C. Memo. 1969-79; Osteopathic Med. Oncology & Hematology,
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