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Cir. 1994); Wilkinson-Beane, Inc. v. Commissioner, T.C. Memo.
1969-79, affd. 420 F.2d 352 (1st Cir. 1970).
B. Whether Petitioner Must Maintain Inventory
Respondent contends that, because the logs and wood are
merchandise that is an income-producing factor in petitioner’s
business, petitioner must maintain inventories and report its
taxable income under the accrual method.
Petitioner failed to respond in its reply brief to
respondent’s arguments regarding this issue. In its opening
brief petitioner argues that the purchased wood is not inventory
because petitioner does not possess title to it. Petitioner’s
only statement on this issue is:
It seems reasonably far-fetched to contend that a
person that harvests trees on land not owned by
Petitioner and delivers them to a mill under
Petitioner’s contract, which Petitioner first learns
about when it is presented a scale slip, somehow
resulted in Petitioner receiving title to a log that is
probably pulp before Petitioner’s obligation to pay
arises. Indeed, we are unsure what this inventory
argument truly brings to the clear reflection of
anything since the “inventory” seems to be sold before
it is received and the Petitioner never has the risk of
loss or the benefits and burdens of ownership.
For the reasons stated below, we agree with respondent that
petitioner maintains inventory and must use the accrual method.
1. Purchase, Production, or Sale
It is undisputed that petitioner purchases the purchased
wood. Petitioner then resells the purchased wood to the mills.
Additionally, in evaluating the substance of the transactions,
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