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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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