- 45 -
Perlmutter v. Beth David Hosp., 308 N.Y. 100, 123 N.E.2d 792, 796
(1954) ("what the complaint alleges and truly describes is not a
purchase and sale of a given quantity of blood, but a furnishing
of blood to plaintiff for transfusion at a stated sum, as part
of, and incidental to, her medical treatment"). Whether strict
tort liability applies under the laws of a particular State is
not determinative as to the issue at hand, which is whether, for
purposes of section 448(d)(5), medical supplies are so connected
to the performance of medical services that income attributable
to the medical supplies constitutes income earned from the
performance of those services. We agree with petitioners that,
for purposes of section 448(d)(5), medical supplies furnished in
the course of rendering medical services are inseparably
connected to the performance of those services and that income
attributable to medical supplies therefore constitutes income
earned from the performance of services within the meaning of
that section.18
18 Our conclusion that income earned through the performance of
services includes income relating to accounts receivable
attributable to medical supplies used in the course of the
diagnosis, prognosis, and treatment of the hospitals' patients is
applicable in the instant case only for purposes of our
construction of sec. 448(d)(5). We do not decide in this
opinion, as we did not decide in our prior Memorandum Opinion,
Hosp. Corp. of America v. Commissioner, T.C. Memo. 1996-105, the
question of whether the furnishing of medical supplies by
petitioners' hospitals as a part of the rendering of services to
their patients could be considered to be a sale of merchandise
which must be inventoried pursuant to sec. 1.471-1, Income Tax
(continued...)
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