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and sales. See secs. 1.446-1(c)(2), 1.471-1, Income Tax Regs.
Thus, generally, if the purchase and sale of merchandise is an
income-producing factor, an accrual method must be used with
regard to such purchases and sales.
The nominal focus of the majority’s inquiry is whether the
chemotherapy drugs are merchandise: “We focus our inquiry on
whether the chemotherapy drugs were supplies deductible under
section 162, or merchandise that must be inventoried under
section 471.” Majority op. p. 10. The majority states:
“Respondent’s characterization of the chemotherapy drugs as
merchandise offends the natural and ordinary meaning of the term
‘merchandise’”. Id. at 17. The majority concedes, however:
“Although pharmaceuticals could reasonably be construed to be
merchandise in some contexts; * * * it does not necessarily
follow that pharmaceuticals are merchandise in all contexts.”
Id. The majority reaches the conclusion that the chemotherapy
drugs are not merchandise on the basis that petitioner “is not a
merchandiser”, id. at 15, its business “is inherently a service
business”, id. at 16, or “[s]imply put, petitioner is not
peddling products.” Id. at 18. The majority’s conclusions seem
to be informed by its view: “A medical practice such as
petitioner’s is inherently a service business, and the drugs
administered in the practice are subordinate to the provision of
the medical services.” Id. at 16.
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