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Section 448(d)(7)(C)(i) generally provides that a taxpayer
required by section 448(a) to change from the cash method of
accounting may spread the section 481(a) adjustment attributable
to that change over a period that "shall not exceed 4 years".
Section 448(d)(7)(C)(ii), however, provides that, for "a
hospital", the spread period "shall be 10 years." See supra note
5.
Respondent argues that the phrase "shall not exceed", which
modifies the 4-year spread period provided in clause (i) of
section 448(d)(7)(C), applies also to the 10-year spread period
specified for hospitals in clause (ii) of that section.
Respondent relies on the following excerpt from H. Rept. 99-426,
at 608-609 (1985), 1986-3 C.B. (Vol. 2) 1, 608-609, to support
the position that Congress did not intend to give hospitals,
under all circumstances, an unlimited 10-year period for the
section 481(a) adjustment:
Transitional rules
The committee bill treats any change from the cash
method of accounting required as a result of the committee
bill as a change in the taxpayer's method of accounting,
initiated by the taxpayer with the consent of the Secretary
of the Treasury. In order to prevent items of income and
expense from being included in taxable income either twice
or not at all, an adjustment under section 481 is required
to be made. The amount of such adjustment will be included
in income over a period not to exceed five taxable years.
It is expected that the concepts of Revenue Procedure 84-74,
1984-2 C.B. 736, generally will apply to determine the
actual timing of recognition of income or expense as a
result of the adjustment.4
In the case of the business of operating a hospital,
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