- 18 -
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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