- 50 -
services to their patients could be considered to be a sale of
merchandise which must be inventoried pursuant to section 1.471-
1, Income Tax Regs.
Petitioners contend that even if its hospitals are required
to use inventories under section 471, the use of an overall
accrual method is not necessary to reflect income clearly. They
maintain that under section 1.446-1(c)(1)(iv), Income Tax
Regs.,24 an accrual method is required only with regard to
24
Sec. 1.446-1(c)(1)(iv), Income Tax Regs., provides in
pertinent part as follows:
Permissible methods.--(1) In general. Subject to the
provisions of paragraphs (a) and (b) of this section, a
taxpayer may compute his taxable income under any of the
following methods of accounting:
* * * * * * *
(iv) Combinations of the foregoing methods. (a) In
accordance with the following rules, any combination of the
foregoing methods of accounting will be permitted in
connection with a trade or business if such combination
clearly reflects income and is consistently used. Where a
combination of methods of accounting includes any special
methods, such as those referred to in subdivision (iii) of
this subparagraph, the taxpayer must comply with the
requirements relating to such special methods. A taxpayer
using an accrual method of accounting with respect to
purchases and sales may use the cash method in computing all
other items of income and expense. However, a taxpayer who
uses the cash method of accounting in computing gross income
from his trade or business shall use the cash method in
computing expenses of such trade or business. Similarly, a
taxpayer who uses an accrual method of accounting in
computing business expenses shall use an accrual method in
computing items affecting gross income from his trade or
business.
(continued...)
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