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purchases and sales and that the cash method is permitted for
computing all other items of income and expense. They contend
further that the hybrid method is expressly recognized and
approved by respondent’s regulations. Petitioners additionally
contend that if the applicable hospitals were actually engaged in
the sale of supplies, they would be entitled to use the
installment method of reporting income, which would result in
approximately the same or somewhat less income being reported
than what was reported under the hybrid method as further
modified.
Respondent contends, on the other hand, that petitioners may
not use the hybrid method as further modified because only a
unitary business is involved in the instant case. Petitioners
counter that the hybrid method is an appropriate method even when
a taxpayer’s business is a single business rather than multiple
businesses. We agree with petitioners’ conclusion that the
regulations do not restrict the use of a hybrid method to
taxpayers engaged in more than one business. Cf. sec. 1.446-
1(c)(1)(iv) through (d), Income Tax Regs.
Section 1.446-1(c)(1)(iv), Income Tax Regs., authorizes the
use of a hybrid method such as the one used by petitioners in the
24(...continued)
(b) A taxpayer using one method of accounting in
computing items of income and deductions of his trade or
business may compute other items of income and deductions
not connected with his trade or business under a different
method of accounting. [Emphasis supplied.]
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