- 31 -
conjunction with the hybrid method. See Black Motor Co. v.
Commissioner, 41 B.T.A. 300 (1940), affd. 125 F.2d 977 (6th Cir.
1942). Additionally, they agreed that the cost of medical
supplies was to be capitalized in a supply inventory and deducted
only when such supplies were consumed in the course of treating
the patient, rather than when the supplies were purchased.
During their negotiations with Appeals Officer Johnson, one
of petitioners' representatives requested a closing agreement
relating to the use of the hybrid method, but Appeals Officer
Johnson refused because he knew that petitioners' returns for
subsequent taxable years were already under examination and he
did not want to preclude resolution of such years on a different
basis. Appeals Officer Johnson and Appeals Officer Sinclair
viewed the resolution of the 1972 and 1973 years as "merely a
settlement on the basis of the hazards of litigation." They did
not intend for their actions to effectuate a change in method of
accounting for the hospitals. Neither Appeals Officer Johnson
nor Appeals Officer Sinclair believed that, as a result of their
actions, the IRS was bound to permit the use of the hybrid method
by the hospitals for subsequent years.
Mr. Deaton and Mr. Kown, however, believed that
petitioners' method of accounting for the hospitals had been
changed to the hybrid method by the IRS as a result of the
13(...continued)
to the patient's unwillingness or inability to pay."
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