Mid Del Therapeutic Center, Inc. - Page 20

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            purchase drugs per se.  The drugs are administered to patients                             
            during the course of their treatment.  At no point during the                              
            treatment process does a patient acquire title to the drugs or                             
            exercise control over them.  A patient does not direct how or                              
            when the drugs are administered, nor can a patient simply                                  
            purchase the drugs for self-treatment.  Upon completion of each                            
            treatment, there is nothing left for a patient to acquire, sell,                           
            or otherwise exert ownership rights over.  Although there are                              
            some factual differences between this case and Osteopathic Med.                            
            Oncology & Hematology, P.C., the key operational facts for                                 
            purposes of our determination of whether petitioners’                                      
            chemotherapy drugs constitute merchandise are virtually                                    
            identical.  We hold that this case is controlled by Osteopathic                            
            Med. Oncology & Hematology, P.C. and that, therefore, for                                  
            purposes of section 1.471-1, Income Tax Regs., petitioners’                                
            chemotherapy drugs are not merchandise.                                                    
                  Respondent's determinations in the notices of deficiency                             
            regarding petitioners’ use of the accrual method do not state                              
            that the determinations were premised on respondent’s conclusion                           
            that the chemotherapy drugs are merchandise.7  On brief, however,                          

                  7Other than respondent’s argument that the drugs used by                             
            petitioners are inventory requiring use of the accrual method,                             
            respondent has not posited any reason why petitioners' use of the                          
            cash method does not clearly reflect income.  In fact,                                     
            respondent’s determination in the notices of deficiency in this                            
            case, read literally, is only that the accrual method “more                                
            clearly reflects income than your current ‘Cash Basis’ method of                           
            accounting.”  Implicit in respondent’s determination as phrased                            

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Last modified: May 25, 2011