Von Euw & L.J. Nunes Trucking, Inc. - Page 11

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          record, petitioner generates more profits if it both acquires and           
          transports sand and gravel for its customer rather than solely              
          acting as a transporter.  Further, although not labeled by                  
          petitioner as a markup in its business records, petitioner’s                
          profit for acquiring the sand and gravel is nevertheless a markup           
          since, in substance, the profit is based on a percentage of the             
          underlying cost of the sand and gravel.  Furthermore, petitioner,           
          on its tax return, listed its business activity as the selling of           
          construction materials.                                                     
               In RACMP Enters., Inc. v. Commissioner, 114 T.C. ___ (2000),           
          we recently held that respondent abused his discretion in placing           
          a construction contractor on the accrual method for Federal                 
          income tax purposes.  In that case, we concluded that the                   
          material provided by the contractor to its customer, pursuant to            
          a construction contract for concrete foundations, driveways, and            
          walkways, was not merchandise within the meaning of section                 
          1.471-1, Income Tax Regs.  See id.  In reaching that conclusion,            
          we viewed the construction contract as a service contract,                  
          finding that the materials were indispensable to and inseparable            
          from the provision of that service and that the materials lost              
          their separate identity during the construction activity.  See              
          id.; see also Osteopathic Med. Oncology & Hematology, P.C. v.               
          Commissioner, 113 T.C. 376 (1999) (wherein drugs used as part of            
          chemotherapy treatments were not considered merchandise because             

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