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The majority cites several nontax cases for the proposition
that construction contracts are, per se, contracts for labor and
not contracts for the sale of goods. Considering Thompson Elec.,
Inc. v. Commissioner, T.C. Memo. 1995-292, Tebarco Mechanical
Corp. v. Commissioner, supra, and related cases, it has made no
difference for Federal income tax purposes that the taxpayers
were involved in construction or a service-oriented business.
The more important question (which the majority has not
addressed) is whether the items here were income-producing
factors. Indeed, the answer to the question of whether taxpayers
should maintain inventories and be placed on the accrual method
of accounting should not be different depending upon which
industry we are considering. It must be noted that two-thirds of
petitioner’s profit in this business are attributable to the
materials and only one-third to services or labor.
We consider these factual issues on an ad hoc basis. If, as
a matter of tax law, particular taxpayers fall within the ambit
of a regulation requiring the use of the inventory method and/or
the accrual method of accounting, they should not be exempted
because of State case or statutory law, especially if other
similarly situated Federal taxpayers must otherwise comply with
the same rules under the same circumstances.
To the extent that the majority relies on cases that hold
that an accretion to real property is not the sale of goods,
those holdings should be given no more credibility than contract
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