RACMP Enterprises, Inc. - Page 18




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          primarily for sale, use inventories.  See W.C & A.N. Miller Dev.            
          Co. v. Commissioner, 81 T.C. 619, 630 (1983); Atlantic Coast                
          Realty Co. v. Commissioner, 11 B.T.A. 416, 419-420 (1928).  As              
          indicated by the legislative history, Congress intended the                 
          section to apply to manufacturing and merchandising concerns.5              
               In Osteopathic Med. Oncology & Hematology, P.C. v.                     
          Commissioner, supra, we held that where the inherent nature of              
          the taxpayer's business is that of a service provider, and the              
          taxpayer uses materials that are an indispensable and inseparable           


               5The original authority for the use of inventories is                  
          contained in Revenue Act of 1918, ch. 18, sec. 203, 40 Stat.                
          1057, 1060.  Sec. 203 of that Act is almost identical to section            
          471.  In proposing this legislation, the Committee on Ways and              
          Means explained:                                                            
                    In many cases the only way that the net income can                
               be determined is through the proper use of inventories.                
               This is largely true in the case of manufacturing and                  
               merchandise concerns.  The bill authorizes the                         
               Commissioner to require inventories whenever in his                    
               opinion the same is necessary in order to clearly                      
               reflect the income of the taxpayer.  [H. Rept. 767,                    
               65th Cong., 2d Sess. 88 (1918), 1939-1 C.B. (Part 2)                   
               86, 89.]                                                               
          See Seidman, Seidman's Legislative History of Federal Income Tax            
          Laws 1938-1861, at 900 (1953).                                              
               Pursuant to the authority vested in him by statute, the                
          Commissioner, with the approval of the Secretary, promulgated               
          Art. 1581 of Regulations 45 under the Revenue Act of 1918, which            
          essentially is the same as sec. 1.471-1, Income Tax Regs.  See              
          Regs. 62, art. 1581; Sec. 29.22(c)-1, Regs. 111 (1944); see also            
          Burroughs Adding Mach. Co. v. Commissioner, 9 B.T.A. 938, 940               
          (1927) (Art. 1581 of Regulations 62 contains the same language as           
          Art. 1581 of Regulations 45); Galedrige Constr., Inc. v.                    
          Commissioner, T.C. Memo. 1997-240 (sec. 1.471-1, Income Tax                 
          Regs., contains the same language as Regs. 111, sec. 29.22(c)-1).           





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