- 73 -
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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