- 44 -
Inc. v. Commissioner, 90 T.C. 26, 32 (1988); secs. 1.446-
1(c)(1)(ii), 1.451-1(a), Income Tax Regs.
Petitioners contend that respondent's determination
requiring the hospitals to change from the hybrid method to an
overall accrual method was an abuse of respondent's discretion
because, during earlier audits, respondent had changed those
hospitals from the cash method to the hybrid method and, in
subsequent audits, had reviewed and approved the use of the
hybrid method. Petitioners assert that, in changing the
hospitals to the hybrid method, respondent necessarily determined
that the hybrid method clearly reflected the hospitals' income
and that during the years in issue there were no changes in the
law or the facts which would cause the hybrid method to fail in
continuing to reflect income clearly. Accordingly, petitioners
contend, respondent cannot now change the hospitals to an overall
accrual method for the years in issue.
On the other hand, respondent contends that no change in
petitioners' method of accounting was approved by respondent as
clearly reflecting income when respondent's agents resolved the
examinations of petitioners' returns for taxable years ended 1972
through 1980. Accordingly, respondent contends, the resolution
of those years by the agreement to use the hybrid method was
merely for "settlement" purposes. Respondent also contends that
the hospitals purchased and sold inventory, and, consequently,
they must use an accrual method for the taxable years ended 1981
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