RACMP Enterprises, Inc. - Page 73




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          1969-79, for the rule that the taxpayer was required to take                
          inventories even if he was partly or mainly performing a service.           
          The District Court pointed out that the taxpayer’s argument that            
          it was a service provider would have been stronger if it had                
          subcontracted out the actual production of the tools and dies:              
          “[I]nasmuch as the customer is obviously only interested in                 
          getting a tool or die to his specifications, regardless of who              
          made it”.  Fame Tool & Manufacturing Co. v. Commissioner, supra             
          at 28.                                                                      
               Finally, in applying the integral-to-service test, what                
          weight do we give to a comparison of the relative costs of the              
          materials and labor constituting the taxpayer’s work product                
          (assuming that the taxpayer had title to the materials)?  Compare           
          Drazen v. Commissioner, 34 T.C. 1070, 1078-1079 (1960) (taxpayers           
          arguing for inventories--(to put them on the accrual method, so             
          they could accrue deferred payments against current costs)--did             
          not have sufficient manufacturing operations to require                     
          inventories) with Thompson Elec., Inc. v. Commissioner, T.C.                
          Memo. 1995-292 (substantiality of material costs compared to                
          receipts taken into account in determining whether material is a            
          substantial income-producing factor).                                       
               Shasta Indus., Inc. v. Commissioner, T.C. Memo. 1986-377, is           
          a traditional factor case that, apparently, would come out                  
          differently under the integral-to-service test.  The taxpayer, a            
          swimming pool contractor, constructed custom-designed, in-ground            




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