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petitioners to use the hybrid method as modified, but adjusting
for the years under consideration the fraction used to determine
the portion of patient receivables to be reported on an accrual
method by including in the numerator of that fraction the revenue
included in certain additional accounts which were similar in
nature to the Central Supply and Pharmacy accounts so as to
correct for perceived deviations from the hybrid method agreed to
for the earlier years (hereinafter referred to as the hybrid
method as further modified). The inclusion of the revenue from
such additional accounts raised the percentage of year-end
patient receivables being reported on an accrual method by
approximately one and one-half percentage points.
Returns for the Years in Issue
The accounting method adjustment for petitioners' taxable
years ended 1979 and 1980 was resolved in December 1986, at which
time petitioners' returns for the taxable years ended 1981
through 1985 already had been filed. For such years the
hospitals used the hybrid method as modified for reporting
taxable income.
Petitioners also used the hybrid formula as modified, rather
than the hybrid formula as further modified, for the return they
filed for taxable year ended 1986 because they were informed that
respondent's revenue agents auditing the returns for taxable
years ended 1981 and 1982 intended to challenge petitioners' use
of the hybrid method for those years. The teams of agents
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