- 12 - 1970), affg. T.C. Memo. 1969-79. Merchandise is an income- producing factor whenever its cost is significant to the taxpayer’s gross receipts computed under the cash method. See, e.g., Wilkinson-Beane, Inc. v. Commissioner, supra at 355 (income-producing factor where cost of coffin was included in price of funeral package and represented 15.4 percent and 14.7 percent of cash basis receipts); Knight-Ridder Newspapers, Inc. v. United States, 743 F.2d 781, 790 (11th Cir. 1984) (17.6 percent of total cash receipts suggests that items are an income-producing factor); Thompson Elec., Inc. v. Commissioner, T.C. Memo. 1995-292 (income-producing factor where cost of materials consisted of 37 percent to 44 percent of gross receipts). Merchandise may be properly characterized as an income-producing factor even if it is not maintained in yearend inventory.4 J.P. Sheahan Associates., Inc. v. Commissioner, T.C. Memo. 1992-239. In the case of Diehl, it manufactured or purchased all of its products, and its sale of those products was its only source of income. Under the facts at hand, we conclude that Diehl’s products were “merchandise” and that Diehl’s sale of its merchandise was an income-producing factor in its business. 4 In this regard, we disagree with petitioner that it is a per se abuse of discretion when respondent’s change in method of accounting generates adjustments to accounts receivable and not to the amount of inventory at either the beginning or end of the year. We also disagree with petitioner’s assertion that the fluctuation of the amount of yearend inventory is dispositive to our analysis.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
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