                    FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

LOAD, INC.; COAD, INC.,                        No. 07-72564
                           Petitioners,           D.C. No.
               v.                              CIR-1 : 7287-02
COMMISSIONER OF INTERNAL                         ORDER
REVENUE,                                        AMENDING
                      Respondent.              OPINION AND
                                                 AMENDED
                                                 OPINION

                 Appeal from a Decision of the
                   United States Tax Court
               Stephen J. Swift, Judge, Presiding

                    Argued and Submitted
         January 14, 2009—San Francisco, California

                     Filed February 2, 2009
                    Amended March 4, 2009

       Before: Myron H. Bright,* Procter Hug, Jr., and
             Stephen Reinhardt, Circuit Judges.

                       Per Curiam Opinion




   *The Honorable Myron H. Bright, Senior United States Circuit Judge
for the Eighth Circuit, sitting by designation.

                               2685
2686                  LOAD, INC. v. CIR




                         COUNSEL

John F. Daniels, Janice Procter-Murphy, Alexander Arpad,
Phoenix, Arizona, for the petitioners.

Richard T. Morrison, Acting Assistant Attorney General,
Teresa E. McLaughlin, Kathleen E. Lyon, Washington, D.C.,
for the respondent.


                          ORDER

 The Opinion filed February 2, 2009 and appearing at 2009
WL 225332 (C.A. 9) is amended as follows:

   1. Following the first sentence in the third full paragraph,
insert the sentence “The Tax Court opinion is attached as an
appendix.”

  2. The Tax Court opinion, LOAD, Inc. v. Comm’r, 93
T.C.M. (CCH) 969 (2007), in its entirety, is attached to this
opinion as an appendix.
                          LOAD, INC. v. CIR                         2687
                              OPINION

PER CURIAM:

   Appellants LOAD, Inc. and COAD, Inc.1 challenge the Tax
Court’s determination of a federal income tax deficiency for
the tax year ending September 30, 2000. The Tax Court held
that certain of ADI’s expenses were not deductible as ordi-
nary and necessary business expenses under 26 U.S.C.
§ 162(a) and must be capitalized as inventory costs under 26
U.S.C. § 263A.

   We review the Tax Court’s findings of fact for clear error
and its conclusions of law de novo. Kelley v. Comm’r, 45 F.3d
348, 350 (9th Cir. 1995). Our exclusive jurisdiction to review
a final decision of the Tax Court arises under 26 U.S.C.
§ 7482.

  The Tax Court wrote an extensive opinion on this matter.
See LOAD, Inc. v. Comm’r, 93 T.C.M. (CCH) 969 (2007).
The Tax Court opinion is attached as an appendix. We
approve and adopt that opinion as governing this case.

  Accordingly, we affirm.




  1
   Although only LOAD and COAD are parties to this petition for review,
Associated Dealers, Inc. and 12 other affiliated companies have raised
similar arguments and agree to be bound by the final outcome of this liti-
gation. We refer to LOAD, COAD, Associated Dealers, Inc., and the 12
other affiliated companies as “ADI.”
2688                    LOAD, INC. v. CIR
                          APPENDIX

T.C. Memo. 2007-51, 2007 WL 675950 (U.S.Tax Ct.), 93
T.C.M. (CCH) 969, T.C.M. (RIA) 2007-051, 2007 RIA TC
Memo 2007-051

                    United States Tax Court.

                 LOAD, Inc., Petitioner
                             v.
       COMMISSIONER OF INTERNAL REVENUE,
                       Respondent.
                 COAD, Inc., Petitioner
                             v.
       Commissioner of Internal Revenue, Respondent.

                    Nos. 7287-02, 7294-02.

                        March 6, 2007.

Background: Taxpayers, sister companies engaged in buying
and selling manufactured homes, petitioned for redetermina-
tion of deficiencies arising from disallowance of business
expense deductions.

Holdings: The Tax Court, Swift, J., held that:

(1) costs associated with placing model homes on retail sales
lots were outside “on-site storage facility” exception to inven-
tory rule, and

(2) same costs were also outside “marketing, selling, advertis-
ing, and distribution” exception to inventory rule.

Decision for IRS.
                       LOAD, INC. v. CIR                    2689
 MEMORANDUM FINDINGS OF FACT AND OPINION

SWIFT, Judge.

   *1 Respondent determined deficiencies in petitioners’ Fed-
eral income taxes for their separate taxable years ending Sep-
tember 30, 2000, as follows:

Petitioner           Deficiency
LOAD, Inc.           $16,589
COAD, Inc.           $23,954

   Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the year in issue.

   The issue for decision is whether certain costs relating to
manufactured homes that petitioners owned and placed on
retail sales lots in order to assist local independent salesper-
sons in the sale of manufactured homes may be currently
deducted under section 162 as ordinary and necessary busi-
ness expenses or whether they should be included under sec-
tion 263A in petitioners’ inventory costs relating to the
manufactured homes.

   Petitioners and 18 other related corporations are either sub-
sidiaries of, or sister corporations to, Associated Dealers, Inc.
(ADI), a Nevada corporation.

  ADI and 12 of ADI’s related corporations also have filed
petitions with the Court relating to the same expense versus
inventory issue that is involved herein,FN1 and respondent,
ADI, and the other related petitioners have agreed to be bound
by the final outcome of this issue in these two consolidated
cases.

  Hereinafter, we generally use the acronym ADI indiscrimi-
nately to refer to petitioners, to ADI, and to the ADI-related
corporations.
2690                   LOAD, INC. v. CIR
                    FINDINGS OF FACT

  Some of the facts have been stipulated and are so found.

  At the time the petitions were filed, both petitioners’ princi-
pal places of business were located in Reno, Nevada.

  ADI and its related corporations buy and sell manufactured
homes in the same manner.

  Manufactured homes are constructed at a factory location
and are then transported directly to homesites of retail pur-
chasers.

   ADI has been selling manufactured homes for more than 30
years, and ADI has become the largest seller of manufactured
homes in Arizona and one of the largest sellers of manufac-
tured homes in the Southwestern United States. In recent
years, ADI has expanded its sales of manufactured homes to
192 locations in 22 states.

  From the 1970s through the late 1990s, ADI purchased
completed manufactured homes from unrelated manufacturers
and sold the manufactured homes directly to retail customers
using individual salespersons who worked for ADI as
employees.

   In the late 1990s, however, as a result of a significant
decline in business and excessive costs such as employee
wages and commissions, a number of manufacturers of manu-
factured homes closed factories, and many sellers of manufac-
tured homes went out of business.

   To adjust to the changing market conditions and to reduce
costs, in approximately 1999 ADI adopted a revised business
plan and restructured its sales operation. Under ADI’s revised
business plan, ADI’s salespersons are given a more active role
                       LOAD, INC. v. CIR                    2691
in the sales activities and act as independent contractors vis-a-
vis ADI.FN2

   *2 Under the agreements ADI enters into with the indepen-
dent salespersons, ADI purchases from manufacturers a num-
ber of model manufactured homes and places the model
manufactured homes on retail sales lots that ADI leases for
the purpose of displaying the manufactured homes to the pub-
lic and to potential retail customers.

   The retail sales lots that ADI leases generally are located in
prominent, high traffic areas-either the same sales lots ADI
had leased and used in prior years or new sales lots. These
lots are not leased by ADI as storage lots, but rather the lots
are leased by ADI as sales lots for the sale of manufactured
homes.

   ADI places the model manufactured homes on the sales lots
to attract public attention, to provide an opportunity for inter-
ested retail customers to inspect the types of manufactured
homes that are available for purchase, and in order that the
independent salespersons have manufactured homes on the
sales lots to show to customers.

   On any one sales lot, ADI generally places on display six
to seven model manufactured homes that ADI has purchased
from manufacturers, each with different features and floor
plan.

   During their inspection of ADI model manufactured homes,
retail customers generally are accompanied by one of the
independent salespersons who has contracted with ADI. The
independent salespersons discuss with customers the advan-
tages of manufactured homes, the various features of the
model homes that are on display and that can be custom
ordered, and they seek to convince the customers to purchase
a manufactured home.
2692                   LOAD, INC. v. CIR
   Once a retail customer decides to purchase a manufactured
home, the customer and the independent salesperson fill out
a written purchase agreement and bill of sale on which they
indicate which floor plan, appliances, and other features and
colors are to be included in the particular manufactured home
that is being purchased. On the purchase agreement and bill
of sale, the customer is shown as purchasing the manufactured
home from the independent salesperson. The independent
salesperson then submits to ADI the customer’s purchase
agreement and bill of sale.

   The retail selling prices of the manufactured homes appear
to range from approximately $30,000 to more than $115,000.

   Upon receipt by ADI of a customer’s purchase agreement
and upon approval of the customer’s financing, if any, ADI
forwards its own written purchase order to the specified man-
ufacturer for construction of the manufactured home that has
been ordered.

   Upon completion of the manufactured home-generally
within 2 to 3 weeks-the manufactured home is shipped
directly by the manufacturer to the retail customer’s homesite
for installation and occupancy.

   If a customer’s homesite is not ready for delivery (e.g., if
the occupancy permit has not been issued or if the utility
hookups for the home have not been completed), the com-
pleted manufactured home may be delivered to one of ADI’s
nearby sales lots until the customer’s homesite is ready for
installation of the manufactured home. In this latter situation,
the length of time the completed and sold manufactured home
remains on ADI’s sales lots varies from a few days to several
months depending on how long it takes for the customer’s
homesite to be completed.

  *3 Under the written contracts that are entered into
(between ADI and the manufacturers, between the indepen-
                       LOAD, INC. v. CIR                   2693
dent salespersons and ADI, and between retail customers and
the independent salespersons), upon completion the manufac-
tured homes are sold by the manufacturers to ADI, by ADI to
the independent salespersons, and by the independent sales-
persons to the retail customers.

   Of manufactured homes sold by ADI, approximately 90
percent are custom ordered by retail customers based on the
decisions and selections customers make in their discussions
and negotiations with the independent salespersons and while
inspecting ADI’s model manufactured homes on the sales
lots.

  Approximately 10 percent of the manufactured homes sold
by ADI consist of the model manufactured homes that are
purchased by retail customers right off of the sales lots, after
negotiating with the independent salespersons.

   ADI sells the manufactured homes to the independent
salespersons for the same wholesale price which ADI pays the
manufacturers for the manufactured homes. The independent
salespersons set the price markup at which the manufactured
homes are sold to retail customers, subject of course to nego-
tiations with the customers.

   Generally, title to manufactured homes that are custom
ordered by retail customers and that are shipped directly to the
customers’ homesites is held by ADI and by the independent
salespersons only briefly. The record is not clear as to exactly
when title passes and as to who has title to the manufactured
homes during the delivery process.

   During the time they are located on the sales lots that ADI
leases, model manufactured homes are owned by and titled to
ADI.

   The independent salespersons, not ADI, are responsible for
local media advertising costs, wages, if any, paid to sales
2694                   LOAD, INC. v. CIR
assistants, sales commissions, sales taxes, and utility fees and
insurance premiums on the sales lot.

   As indicated, ADI enters into the sales lot lease agreements
with owners of the real property, and ADI, not the indepen-
dent salespersons, makes the lease payments due on these
leases.

 Also, ADI pays some miscellaneous costs relating to the
model manufactured homes that are placed on the sales lots.

   For the majority of its income relating to the purchase and
sale of manufactured homes, ADI receives various incentive
payments from the manufacturers and from lenders (e.g., on
each manufactured home sold ADI might receive a cash
incentive payment from the manufacturer of 10 percent of the
total purchase price paid to the manufacturer). Incentive pay-
ments that ADI receives are referred to in the record as “re-
tail” incentives, and it appears that these payments represent
incentives typically given by manufacturers and lenders to
retail sellers of manufactured homes.

  ADI also receives from the independent salespersons a
$300 processing fee for each manufactured home sold.

   The independent salespersons do not receive wages, salary,
sales commissions, or other fees or incentives from ADI or
from the manufacturers or lenders relating to manufactured
homes that are sold. Rather, for their income the independent
salespersons retain 100 percent of the retail price markup
from the manufacturer’s wholesale price.

   *4 In the written agreements ADI enters into with the inde-
pendent salespersons, the independent salespersons expressly
give up their right to receive any of the manufacturers’ retail
incentive payments and acknowledge that ADI is to receive
all incentive payments.
                      LOAD, INC. v. CIR                   2695
   On petitioners’ timely filed corporate Federal income tax
returns for their tax year ending September 30, 2000, petition-
ers deducted, among other things, as section 162 ordinary and
necessary business expenses $243,350 in sales lot lease pay-
ments and $22,387 in miscellaneous expenses incurred during
the year. The $22,387 miscellaneous expenses consist of
$16,184 ADI paid to ship model manufactured homes from
closed sales lots to other sales lots, $3,423 ADI paid to avoid
a sheriff’s seizure relating to delinquent State taxes a former
independent salesperson had not paid, $2,500 ADI paid for
repairs on a model manufactured home, and $280 ADI paid
for cleaning a water-damaged carpet in a model manufactured
home.

  On audit, respondent determined that the above costs were
not currently deductible by petitioners under section 162 as
ordinary and necessary business expenses but instead should
be included under section 263A in petitioners’ inventory costs
of the manufactured homes.

                          OPINION

   Generally, under section 263A(a) and (b), indirect costs
allocable to inventory acquired for resale are not currently
deductible and are to be included in inventory.FN3

   Regulations promulgated under section 263A expressly
include transportation, rent, taxes, and repair and maintenance
costs relating to property held for resale as examples of indi-
rect costs to be included in inventory. Sec. 1.263A-
1(e)(3)(ii)(G), (K), (L), (O), Income Tax Regs.

   Also, costs associated with storing property held for resale
generally are to be included in inventory. Sec. 1.263A1
(e)(3)(ii)(H), Income Tax Regs.

  However, under section 1.263A-1(e)(3)(iii)(I), Income Tax
Regs., storage costs relating to inventory which are incurred
2696                    LOAD, INC. v. CIR
by a taxpayer at an “on-site storage facility” are excepted
from inclusion in inventory.

   An on-site storage facility is defined in the regulations as
a storage facility that is physically attached to and that is an
integral part of a “retail sales facility”. Sec. 1.263A3
(c)(5)(ii)(A), Income Tax Regs.

  A “retail sales facility” is further defined as the location at
which merchandise is sold “exclusively to retail customers in
on-site sales”. Sec. 1.263A-3(c)(5)(ii)(B)(1), Income Tax
Regs.

   With an exception not here relevant, a retail customer is
defined as the final purchaser of merchandise and does not
include a person who resells the merchandise to others. Sec.
1.263A-3(c)(5)(ii)(E)(1), Income Tax Regs.

   If a storage facility does not meet the above definition of
an on-site storage facility, it is considered an “off-site storage
facility,” and storage costs relating to property held for resale
are to be included in the taxpayer’s inventory. Sec. 1.263A-
3(c)(5)(ii)(F), Income Tax Regs.

   *5 Under section 1.263A-1(e)(3)(iii)(A), Income Tax
Regs., another exception is provided to the inventory require-
ment of section 263A for “marketing, selling, advertising, and
distribution costs” relating to property held for resale.

   ADI argues that the costs in question qualify as marketing,
selling, or distribution costs of property held for resale that
are excepted from inventory and, alternatively, that by virtue
of its ownership and placement of model manufactured homes
on the retail sales lots ADI participates directly in the sales of
the manufactured homes to retail customers, and therefore
that ADI’s leased sales lots should be treated as “on-site” stor-
age facilities and the various costs in dispute should be treated
as on-site storage costs that are excepted from inventory.
                       LOAD, INC. v. CIR                    2697
   Respondent argues that for ADI the costs in question do not
constitute deductible marketing, selling, or distribution costs,
and that (assuming the lot lease payments may be treated as
storage costs) the lot lease payments do not constitute “on-
site” storage costs because the manufactured homes are sold
by ADI to the independent salespersons and not “exclusively”
to retail customers.

  We first address ADI’s alternative argument. As noted, the
applicable regulations relating to on-site storage costs
expressly state that to be excepted from inventory treatment
on-site storage costs must relate to property sold by a taxpayer
“exclusively” to retail customers. Sec. 1.263A-3(c)(5)(ii)(B),
Income Tax Regs.

   On the record before us and although ownership of the
manufactured homes by the independent salespersons appears
to be brief and rather transitory, we are not prepared to over-
look the role of the independent salespersons who clearly
have a significant role in the sales of the manufactured homes
to retail customers and who, at some point and for a period
of time not established in the record, actually take title to the
manufactured homes.

   We conclude that although ADI participates in the sale of
the manufactured homes to the retail customers, ADI does not
sell the manufactured homes exclusively to the retail custom-
ers (i.e., ADI’s sale and title transfer occurs from ADI to the
independent salespersons). Accordingly, the costs in question
do not qualify for the section 1.263A-1(e)(3)(iii)(I), Income
Tax Regs. exception from inventory for on-site storage costs.

   Further, we reject ADI’s attempt to recharacterize the costs
in question as deductible marketing, selling, or distribution
costs that would be excepted from inventory under section
1.263A1(e)(3)(iii)(A), Income Tax Regs.

   The evidence establishes that the $243,350 in question con-
stitutes lot lease payments, the $16,684 in question constitutes
2698                   LOAD, INC. v. CIR
transportation costs, the $3,423 in question constitutes State
taxes, the $2,500 in question constitutes repair expenses, and
the $280 in question constitutes maintenance costs, all specifi-
cally required to be included in inventory under section 1
.263A-1(e)(3)(ii)(G), (K), (L) and (O), Income Tax Regs.
None of the expenses in question constitutes a marketing or
distribution expense, and none is currently deductible as an
ordinary and necessary business expense under section 162.

  *6 To reflect the foregoing,

Decisions will be entered for respondent.

    FN1. The related docket numbers are: 7283-02,
    7284-02, 7285-02, 7286-02, 7288-02, 7289-02,
    7290-02, 7291-02, 7292-02, 7293-02, 7295-02,
    7296-02, and 7297-02.

    FN2. The independent salespersons who contract
    with ADI generally incorporate their individual sales
    activities. For purposes of our opinion, however, we
    refer only to the independent salespersons, not to
    their corporations.

    FN3. Although residential homes constructed on-
    site for resale generally are not treated as inventory
    and costs associated therewith are to be capitalized
    under sec. 263A(a)(1)(B), manufactured homes, as
    long as they have not become fixtures to real prop-
    erty, are treated as personal property, and costs asso-
    ciated therewith are subject to inventory treatment
    under sec. 263A(a)(1)(A). See, e.g., Murray v. Zer-
    bel, 159 Ariz. 99, 764 P.2d 1158, 1161
    (Ariz.Ct.App.1988).
