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the Court to redetermine the respective deficiencies. These
cases were consolidated for purposes of trial, briefing, and
opinion because they involve common questions of law and fact.
The deficiencies result from respondent's determination,
pursuant to section 446(b),1 that petitioners must use an accrual
method of accounting to report their taxable income. The
ultimate issue to be decided is whether respondent abused his
authority under section 446(b) by requiring petitioners to change
from the cash receipts and disbursements method of accounting
(the cash method) to the accrual method. In order to decide that
issue, we must examine the related question of whether
chemotherapy drugs and related medications (the drugs),
administered by petitioners to patients during the course of
medical treatments, are merchandise which must be inventoried.
We hold that the drugs in question are not merchandise and that
respondent abused his discretion under section 446(b) by
requiring petitioners to change from the cash method to the
accrual method of accounting.
1All section references are to the Internal Revenue Code in
effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure. For
convenience, all monetary amounts have been rounded to the
nearest dollar.
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