[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.471-1]

[Page 496-497]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.471-1  Need for inventories.

    In order to reflect taxable income correctly, inventories at the 
beginning and end of each taxable year are necessary in every case in 
which the production, purchase, or sale of merchandise is an income-
producing factor. The inventory should include all 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. 
Merchandise should be included in the inventory only if title thereto is 
vested in the taxpayer. Accordingly, the seller should include in his 
inventory goods under contract for sale but not yet segregated and 
applied to the contract and goods out upon consignment, but should 
exclude from inventory goods sold (including containers), title to which 
has passed to the purchaser. A purchaser should include in inventory 
merchandise purchased (including containers), title to which has passed 
to him, although such merchandise is in transit or for other reasons has 
not been reduced to physical possession, but should not include goods 
ordered for future delivery,

[[Page 497]]

transfer of title to which has not yet been effected. (But see Sec. 
1.472-1.)

[T.D. 6500, 25 FR 11724, Nov. 26, 1960]