- 29 - section 1.446-1(a)(4)(i), Income Tax Regs. The RAR further asserted that the existence of merchandise inventories required the hospitals to use an overall accrual method. In disagreeing with the proposed adjustments, petitioners contended that they were entitled to use the cash method in reporting their income because the hospitals merely used or consumed various medical supplies in the course of providing typical hospital services. Subsequently, the Commissioner issued a notice of deficiency for the years ended 1972 and 1973. Petitioners timely filed a petition in the U.S. Tax Court challenging the proposed change in accounting method as well as certain other determinations of the Commissioner. The issues raised in the petition, including the accounting method adjustment, were then referred for consideration to the IRS Appeals Office in Nashville (Nashville Appeals Office). The Nashville Appeals Office considered the case in early 1980.12 12 Respondent objects to the admission of evidence relating to consideration of the proposed adjustments for the years ended 1972 and 1973 by the Nashville Appeals Office on the ground that the discussions with the Appeals officers were settlement negotiations and, thus, evidence relating to such matters is inadmissible pursuant to Fed. R. Evid. 408, which generally renders inadmissible evidence of compromises and offers to compromise. We have held in a prior opinion in the instant case that evidence relating to the resolution of such matters is not excludable under Fed. R. Evid. 408 because the evidence was not presented to show the validity or invalidity of petitioners' claim that the hybrid method clearly reflects income. Hospital Corp. of America v. Commissioner, T.C. Memo. 1994-100; see also Wentz v. Commissioner, 105 T.C. 1, 5-7 (1995).Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Next
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