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Federal income tax returns for years ended prior to 1987,
respondent did not contend that the Black Motor formula employed
by those petitioners incorrectly reflected the hospitals' bad
debt experience. In some instances, respondent's agents required
petitioners not using the Black Motor formula to employ that
formula to compute their bad debt reserves. In accordance with
the repeal of section 166(c), effective for the year ended 1987,
petitioners could use only the specific charge-off method to
deduct bad debts. Tax Reform Act of 1986, Pub. L. 99-514, sec.
805, 100 Stat. 2361-2362.
With the consolidated return for taxable year ended 1987,
petitioners timely filed an application on Form 3115, Application
for Change In Accounting Method, to elect the so-called
nonaccrual-experience method5 for taxable year ended 1987.
4 (...continued)
permitted a deduction that was larger than the present value of
the losses. See H. Rept. 99-426, at 577 (1985), 1986-3 C.B.
(Vol. 2) 1, 577; S. Rept. 99-313, at 155 (1986), 1986-3 C.B.
(Vol. 3) 1, 155. Pursuant to TRA sec. 805(a), 100 Stat. 2362,
the positive sec. 481(a) adjustment relating to the repeal of the
reserve method of accounting for bad debts was to be accounted
for ratably over a 4-year spread period commencing with the year
ended 1987.
5 The nonaccrual-experience method provides that an accrual-
method taxpayer generally does not have to accrue as gross income
at the time the taxpayer normally would be required to recognize
income with respect to an account receivable (i.e., at the time
all events had occurred to fix the right to receive the income
and the amount could be determined with reasonable accuracy)
accounts receivable relating to services performed by the
taxpayer that, based on experience, the taxpayer will not
(continued...)
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