- 11 - 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 becausePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011