- 45 -
through 1986, as mandated by section 1.446-1(c)(2), Income Tax
Regs.,19 regardless of any determination respondent may have made
for taxable years ended 1972 through 1980. Additionally,
respondent contends that petitioners' hybrid method does not
clearly reflect income.
The parties devoted a considerable portion of their briefs
to advocating their respective positions that respondent did or
did not change the hospitals to the hybrid method of accounting
as part of the resolution of the audit of petitioners' returns
19
Sec. 1.446-1(c)(2), Income Tax Regs., provides as follows:
(2) Special rules. (i) In any case in which it is
necessary to use an inventory the accrual method of
accounting must be used with regard to purchases and sales
unless otherwise authorized under subdivision (ii) of this
subparagraph.
(ii) No method of accounting will be regarded as
clearly reflecting income unless all items of gross profit
and deductions are treated with consistency from year to
year. The Commissioner may authorize a taxpayer to adopt or
change to a method of accounting permitted by this chapter
although the method is not specifically described in the
regulations in this part if, in the opinion of the
Commissioner, income is clearly reflected by the use of such
method. Further, the Commissioner may authorize a taxpayer
to continue the use of a method of accounting consistently
used by the taxpayer, even though not specifically
authorized by the regulations in this part, if, in the
opinion of the Commissioner, income is clearly reflected by
the use of such method. See section 446(a) and paragraph
(a) of this section, which require that taxable income shall
be computed under the method of accounting on the basis of
which the taxpayer regularly computes his income in keeping
his books, and section 446(e) and paragraph (e) of this
section, which require the prior approval of the
Commissioner in the case of changes in accounting method.
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