- 38 -
supra at 377.13
It is clear from petitioner's billing procedure and the
operation of its construction activity that the materials were
used up before they were paid for by the developer and before
petitioner reported their expense. Therefore, petitioner had no
opportunity to report as an expense any materials that may have
been delivered to a job site before the close of its taxable year
but not yet used.
As was the case in Osteopathic Med. Oncology & Hematology,
P.C. v. Commissioner, supra, the notice of deficiency is worded
broadly as to the specific basis for respondent's determination
that the cash method does not clearly reflect petitioner's
13According to the typical bid worksheet, the only factors
in petitioner's income are materials, labor, and profit. On the
worksheet the total materials cost is $927.39, and the labor cost
is $477. Therefore, typically the cost of labor as a percentage
of the total materials cost is 51.46 percent.
The total cost of all items purchased in the taxable year at
issue was $993,777. Thus, the associated labor cost may be
estimated as approximately $511,360. The sum of these amounts is
$1,505,137. Petitioner received $1,564,045 in gross receipts for
the year at issue and reported $64,806 as taxable income. The
difference between the gross receipts and the sum of the
materials and the approximate cost of labor is $58,908; this
amount is very close to the amount petitioner reported as income.
The profit percentage varied depending on the job, but it
was usually between 10 and 20 percent. The difference between
the amount of income as calculated above and the amount reported
by petitioner is probably attributable to the different profit
percentages charged by petitioner for jobs of different levels of
complexity. Thus, the "typical" profit of 15 percent is a rough
average of the various profit percentages actually charged.
Therefore, petitioner's method of accounting clearly
reflected the amounts that it actually received and the actual
costs incurred to perform the work.
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