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case law. After all, on numerous occasions this Court has been
confronted with the question of whether realty was held for sale
or investment. If real property is held primarily for sale in
the ordinary course of a trade or business, gain from its sale is
ordinary income as opposed to capital gain. See Eline Realty Co.
v. Commissioner, 35 T.C. 1 (1960); Phillips v. Commissioner, 24
T.C. 435 (1955). In other words, taxpayers have been found to be
in the business of selling houses. The costs of materials used
in the construction of houses are not deductible expenses, but
rather they are included in the basis of the home and give rise
to ordinary income or capital gain upon sale. The present
situation is analogous and should be accounted for in the same
manner; i.e., petitioner should not be allowed to deduct expenses
prior to reporting income. Thus, while it is true that real
property is not considered merchandise or inventoriable in the
same sense that personal property is, the method of accounting
for the sale of real property, by way of analogy, reflects that
the material and products remaining on hand or contained in work
in progress should be considered inventory and/or their costs
subtracted from petitioner’s cost of goods sold.
Finally, the majority cites Levine v. State Bd. of
Equalization, 299 P.2d 738 (Cal. App. 2d 1956), a sales tax case,
to support its holding/finding that petitioner is a service
business and the materials that go into making concrete
structures are not merchandise. Although it is irrelevant to the
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