1 Federal Income Taxation of Inventories § 1.03

Summary

• [1] In General

  Under the 1986 Code, the regulations provide that inventories should contain:

  “[A]ll finished or partly finished goods and, in the case of raw materials and supplies, only those which have been acquired for sale or which will physically become a part of merchandise intended for sale, in which class fall containers, such as kegs, bottles, and cases, whether returnable or not, if title thereto will pass to the purchaser of the product to be sold therein.”173

  A literal interpretation of this regulation suggests that the sole consideration in determining whether a particular item is considered inventory is whether the item is held primarily for sale to customers in the ordinary course of business.174