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Petitioners accepted the proposed adjustments and paid the
resulting deficiencies.
Returns Filed Under the Hybrid Method
For the taxable year ended 1979, most of HCA's hospitals
used the hybrid method for reporting income for Federal tax
purposes.15 To reconcile each hospital's income recorded on the
accrual method used for financial reporting purposes to the
hybrid method used for Federal income tax purposes, HCA's Tax
Department prepared records (referred to as cash conversions)
reflecting the appropriate adjustments. When filing the return
for taxable year ended 1979, petitioners did not increase year-
end patient accounts receivable to which the hybrid method
percentage was applied to include the net debit balance of
Medicare and Medicaid receivables as proposed and agreed to on
audit of the returns filed for the years ended 1974 and 1975,
because petitioners had filed the return for taxable year ended
1979 before the conclusion of the examination of the returns
filed for taxable years ended 1974 and 1975. For taxable year
ended 1980 the hospitals included the net debit balance of
15
The number of hospitals owned by petitioners reporting for
Federal income tax purposes on an accrual method and the hybrid
method for each of the years ended 1979 through 1986 were:
1979 1980 1981 1982 1983 1984 1985 1986
Accrual 13 14 16 17 15 15 16 15
Hybrid 76 87 155 170 174 183 218 228
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