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accounting. During that time for tax purposes, however, many
nonprofit hospitals used an accrual method of accounting while
many for-profit hospitals used the cash method or a hybrid method
of accounting.11 Petitioners use an accrual method of accounting
for financial reporting purposes and for reporting to the
Securities and Exchange Commission (SEC).
Tax Returns and History of Use of Method of Tax Accounting
HCA adopted and used an accrual method of accounting for
Federal income tax purposes on its initial Federal income tax
return and continues to use such method. Before the taxable year
ended 1979, most of HCA's hospitals and other subsidiaries used
the cash method of accounting in reporting taxable income for
Federal income tax purposes on the returns as originally filed.
For each taxable year ended before 1987, HCA's Tax
Department prepared records to reconcile income determined on the
accrual method used for financial reporting purposes and income
computed on the cash method used for tax reporting purposes.
HCA's Tax Department retained the results of the computations
made in arriving at cash method taxable income as shown on
petitioners' Federal income tax returns and made those results
11
Sec. 448, which was added to the Code by sec. 801 of the Tax
Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2345, wherein
Congress required certain corporations, including hospitals, to
change prospectively beginning in 1987 to an overall accrual
method, does not apply to the accounting issue under discussion
in the instant opinion.
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