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the tax-exempt status of petitioner during the periods to which
the FPCF expenses relate and completely ignores section 265(1).
Petitioner's position is, to say the least, curious. On the
one hand, it utilizes the relation-back argument in order to
relate the FPCF liabilities to its earlier income-producing
hospital activities since its activities during the years at
issue could not be considered a trade or business within the
meaning of section 162(a). On the other hand, it rejects any
relation back to take into account that the income produced by
its hospital activities was exempt from tax because of its
section 501(c)(3) status. This it may not do.
We are satisfied that the FPCF liabilities are allocable to
petitioner's hospital income in the periods prior to the sale of
the hospital and that section 265(1) applies. That being the
case, the fact that those payments might have been deductible
under section 162(a) had petitioner's hospital business produced
taxable income becomes irrelevant since section 265(1) prevails
over section 162(a) by disallowing deductions falling within its
ambit which are "otherwise allowable". See supra note 12; see
also Stroud v. United States, 906 F. Supp. 990, 996 (D.S.C.
1995), affd. in part and vacated in part without published
opinion 94 F.3d 642 (4th Cir. 1996); Rickard v. Commissioner, 88
T.C. 188, 193-194 (1987). The fact that the nontaxability of the
hospital income derived from petitioner's status rather than from
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