Opinion ID: 769600
Heading Depth: 1
Heading Rank: 6

Heading: R.C. S 471(a) states:

Text: Whenever in the opinion of the Secretary the use of inventories is necessary in order clearly to determine the income of any tax payer, inventories shall be taken by such taxpayer on such basis as the Secretary may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income. 7 On the other hand, the Commissioner is correct in arguing that an income-producing factor under Treas. Reg.S 1.471-1 need not be a net profit-producing factor. Even if a taxpayer sells goods at cost, by inventorying these goods, deductions may be accelerated to offset other income if the accrual method is not used. Thus, so long as the purchase and sale of an item of merchandise is sufficiently significant, see Knight-Ridder, 743 F.2d at 790, whether or not a profit is made on the sale of particular item in inventory is immaterial. See Wilkinson-Beane, 420 F.2d at 355 (Even if it were shown that taxpayer did not mark up the price of the caskets and relied for its profit on the price of the overall funeral, we would apply the familiar maxim that in tax matters the court will not exalt form over substance.); Thompson Electric, 69 T.C.M. at 3048. 8 Because of our resolution of the other issues, we need not decide whether the Tax Court correctly found that, even if asphalt were merchandise, the cash method of accounting yields the same tax results in this case as the accrual method.