- 44 - hospitals is the quintessential service business. They argue that this Court recognized that principle in St. Luke's Hosp. v. Commissioner, 35 T.C. 236 (1960), as did the Supreme Court in Abbott Labs. v. Portland Retail Druggists Association, Inc., 425 U.S. 1 (1976), and the Commissioner in the regulations. Petitioners maintain that hospitals do not sell merchandise but rather acquire medical supplies for use in performing medical services. In the instant case there is no dispute that the hospitals engage in service activities within the meaning of section 448(d)(5). Rather, the issue we must resolve is whether income attributable to medical supplies used in the course of performing those activities is ineligible for the nonaccrual-experience method of accounting merely because some part of the accounts receivable attributable to those medical supplies does not constitute income earned from the performance of services. We find inapposite to the issue involved here the State law cases relied on by respondent. The focus of those cases is on whether strict tort liability principles should be applied to hospitals. Those cases are concerned with public policy considerations as to who should bear the loss from defective, though not negligent, services and/or products. See McDaniel v. Baptist Memorial Hosp., 469 F.2d 230 (6th Cir. 1972); Johnson v. Sears, Roebuck & Co., 355 F. Supp. 1065 (E.D. Wis. 1973); cf.Page: Previous 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 Next
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