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1.471-1, Income Tax Regs.
Consequently, petitioner is not a manufacturer of
merchandise or a merchandising concern, nor engaged otherwise in
a "merchandising" activity. Because petitioner does not produce
or sell merchandise, petitioner is not engaged in a business
activity that requires the maintenance of an inventory. See
Homes by Ayres v. Commissioner, supra.
Mr. Martinez, a corporate officer and shareholder of
petitioner, testified that the only material left over at the
completion of a job is a small pile of sand or gravel. Although
Mr. Martinez' testimony may be regarded as self-serving, in this
case it is consistent with the objective evidence.
The operation of petitioner's construction activity required
it to use most of the materials at the time they were delivered
to the construction site. The stipulations and other evidence
show that materials required to perform the work were ordered
from the suppliers and delivered to the job site, where they were
incorporated almost immediately into the real property
improvements. Each material supplier sent the real property
developer a preliminary lien notice for the materials delivered
to the site. Petitioner submitted its invoice and lien releases
to the real property developer for the materials used to complete
its work at each residential lot. The developer paid for the
cost of the materials that had been used in completing the
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