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use inventories); Epic Metals Corp. v. Commissioner, T.C. Memo.
1984-322 (taxpayer’s failure to prove that title to goods did not
pass to it decisive to decision rejecting its argument that, in
arranging the sale of goods between two other parties, it was
only a broker selling its services and was not a seller itself),
affd. without published opinion 770 F.2d 1069 (3d Cir. 1985).
What about risk of loss? Assume that the taxpayer bears the
risk of loss with respect to materials destroyed during
production or if performance under the contract is rejected. Is
that fact, likewise, irrelevant? If not, how does it influence
the required determination? In Fame Tool & Manufacturing Co. v.
Commissioner, 334 F. Supp. 23 (S.D. Ohio 1971), the taxpayer
manufactured tools and dies to order. It maintained no finished
inventory, had a substantial amount of work in progress, and the
average time to complete an order was 1 or 2 weeks. Since the
end product manufactured by the taxpayer had to satisfy the
customer’s specifications, if the tool or die failed to meet
those specifications, it was rejected and had to be scrapped.
The percentage of rejects varied widely. The taxpayer argued
that, since it was a “pure” tool and die maker, as distinguished
from a precision manufacturer, it provided a service and,
therefore, there was no “merchandise” or any “production” within
the meaning of section 1.471-1, Income Tax Regs. The District
Court rejected that argument, relying on Wilkinson-Beane, Inc. v.
Commissioner, 420 F.2d 352 (1st Cir. 1970), affg. T.C. Memo.
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