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substantial compared to its receipts, the material is a
substantial income-producing factor even if the taxpayer does not
markup the prices charged to its customers for the material.”
What I distill from the Wilkinson-Beane, Inc. line of cases is
that, where the question is whether a provider of services is
using supplies or selling merchandise, the answer turns on
whether the commodity in question is a substantial and
identifiable source of revenue. If so, and if the merchandise is
an income-producing factor, than such merchandise must be
inventoried and an accrual method is appropriate (and may be
required) to match costs and revenue. On the facts before us, I
would require inventories because petitioner is selling
merchandise that is an income-producing factor.
The majority’s finding that the chemotherapy drugs are
subordinate to the services rendered ignores the substantiality
and centrality of the income attributable to the chemotherapy
drugs and involves conclusions that have no basis in the record.
The only facts stipulated with respect to the medical aspects of
petitioner’s business are set forth in the margin.7 Petitioner is
7 When an individual first becomes a patient of petitioner,
one of petitioner’s physicians examines the patient in order to
determine the proper chemotherapy treatment for that patient.
When a patient has been evaluated and a chemotherapy regime
has been prescribed, the patient begins regular, periodic
treatments.
(continued...)
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