- 47 -
The parties’ briefs also extensively debated the question of
whether petitioners’ sales of medical supplies are sales of
merchandise which would require the maintenance of inventories
and an overall accrual method of accounting. Specifically,
petitioners contend that the large inventories of medical
supplies maintained by the hospitals are not merchandise sold to
patients. They argue that their hospitals are engaged in service
businesses and that such supplies do not fit the definition of
merchandise, i.e., goods acquired or produced for sale to
customers in the ordinary course of business at a profit, but are
merely items used in the course of providing medical services.
Accordingly, petitioners maintain that the hospitals are not
required to use an accrual method of accounting for their medical
supplies. Alternatively, petitioners contend that, even if the
medical supplies are merchandise, the hybrid method as further
modified specifically is permitted under respondent's regulations
and clearly reflects the income of the hospitals.
Respondent contends, on the other hand, that section 471
does not require that merchandise be sold, only that it be
purchased and then used in some way to produce income.
Accordingly, respondent contends that section 1.471-1, Income Tax
22(...continued)
446(e) is generally not required” (citing Silver Queen Motel v.
Commissioner, 55 T.C. 1101 (1971) and Foley v. Commissioner, 56
T.C. 765 (1971))).
Page: Previous 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 NextLast modified: May 25, 2011