[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.471-1]

[Page 452-453]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
DEFERRED COMPENSATION, ETC.--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

[[Page 453]]

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, 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]