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method of accounting more clearly reflects income. Respondent
has determined that petitioner should use the accrual method,
and, accordingly, petitioner must show that there has been an
abuse of discretion by addressing the above-referenced factors.
Petitioner, relying on Galedrige Constr., Inc. v. Commissioner,
T.C. Memo. 1997-240, attempts to lessen its burden by attempting
to show that the materials used and the objects constructed are
not merchandise and are instead supplies consumed in performing a
service.
Following petitioner’s lead, the majority holds that neither
the materials nor the constructed products constitute
merchandise. In support of the holding that the materials used
and the products completed by petitioner are not merchandise, the
majority relies on the following: (a) Petitioner is primarily a
service provider (a fact that is not supported by the record when
viewed as a whole); (b) there is no established definition for
the terms “inventory” or “merchandise”; (c) in order for items to
be “merchandise” they must be goods held for sale; (d) case law
holds that, per se, construction contracts are contracts for the
provision of services as opposed to the sale of goods; (e) liquid
concrete cannot be merchandise because it hardens in a short
period of time; i.e., is ephemeral in nature and must, therefore,
be consumed in the performance of a service; (f) the sand,
gravel, re-bar, anchor bolts and rods, expansion anchors,
holddowns, straps, and piping for sewer and drainage lose their
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