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Respondent’s acquiescence in petitioners’ use of the hybrid
method and the hybrid method as modified or as further modified
over four consecutive audit cycles to compute taxable income of
the applicable hospitals, while not binding on respondent, under
the circumstances of the instant case is a factor in petitioners’
favor. See Klein Chocolate Co. v. Commissioner, 36 T.C. 142
(1961); Geometric Stamping Co. v. Commissioner, 26 T.C. 301
(1956); see also Public Service Co. v. Commissioner, 78 T.C. 445,
456 (1982). Another favorable factor is the overwhelming
acceptance of the cash method of accounting in the health care
industry. See Public Service Co. v. Commissioner, supra; Madison
Gas & Electric Co. v. Commissioner, 72 T.C. 521, 556 (1979),
affd. 633 F.2d 512 (7th Cir. 1980). Additionally, petitioners’
hospitals are in the health care industry, which is primarily a
service industry. See St. Luke’s Hospital, Inc. v. Commissioner,
35 T.C. 236, 238 (1960); see also “Audits of Providers of Health
Care Services”, AICPA Audit and Accounting Guide (1992); Office
of Management and Budget, Standard Industrial Classification
Manual, 387-388 (1987). Such industries historically have been
permitted to use the cash method.
Respondent objects to petitioners' use of the hybrid method
of accounting for the hospitals because of the disparity between
the income reported under that method and the income that would
have been reported had the hospitals employed an overall accrual
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