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the extent amounts are attributable to a "taxpayer's activities
with respect to * * * selling goods". Sec. 1.448-2T(d),
Temporary Income Tax Regs., 52 Fed. Reg. 22775 (June 16, 1987).
We held in HCA that the taxpayer's income attributable to
the pharmaceuticals and medical supplies was service income
because it was "inseparably connected" to the performance of
services. Hospital Corp. of Am. v. Commissioner, 107 T.C. at
143. Consistent with that holding, the income that petitioner
earned here from its use of the chemotherapy drugs must also be
considered service income. Service income, by definition, does
not include income from the sale of goods. See, e.g., sec.
1.448-2T(d), Temporary Income Tax Regs., 52 Fed. Reg. 22775 (June
16, 1987). The logical conclusion is that the underlying items
giving rise to service income also are not "merchandise". As we
discussed above, the meaning of the word “merchandise” is no
broader than the meaning of the word "goods", and, if anything,
the word “merchandise” is a subset of the word “goods”. As a
matter of fact, not even respondent has argued that an item can
be “merchandise” for one purpose of the Code but not a “good” for
a different purpose. Nor has respondent argued that an item the
income from which may be reported on the nonaccrual-experience
method may be inventory for purposes of section 471.
The notice of deficiency is worded broadly as to the
specific basis for respondent's determination that the cash
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