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that, under their view, the regulations requiring use of the
accrual method are inapplicable. We agree with petitioners that
their drugs are not merchandise.
The term "merchandise" as used in section 1.471-1, Income
Tax Regs., encompasses goods purchased in condition for sale,
goods awaiting sale, articles of commerce held for sale, and all
classes of commodities held for sale. See Wilkinson-Beane, Inc.
v. Commissioner, 420 F.2d 352, 354-355 (1st Cir. 1970), affg.
T.C. Memo. 1969-79. Thus, items are merchandise if held for
sale. See id.
We recently held in a Court-reviewed opinion that
chemotherapy and other drugs, when used in the course of treating
patients, are not held for sale and, therefore, are not
merchandise. See Osteopathic Med. Oncology & Hematology, P.C. v.
Commissioner, 113 T.C. 376 (1999). In Osteopathic Med. Oncology
& Hematology, P.C., our holding was premised on our conclusion
that the chemotherapy drugs and ancillary medications were both
inseparable from the medical services provided to patients by the
taxpayer and subordinate to the medical services provided. See
id. at 384-385.
As in Osteopathic Med. Oncology & Hematology, P.C., the
furnishing of drugs and other medical supplies in this case is
inseparable from and subordinate to the medical services provided
by petitioners to their patients. See id. Patients come to the
clinics to receive medical treatment from Dr. Ishmael, not to
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