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method of accounting. That disparity results because a portion
of income is reported on the cash basis.
We have noted on other occasions that some distortion of
income is inherent in the cash method of accounting. For
example, in Van Raden v. Commissioner, 71 T.C. 1083, 1104 (1979),
affd. 650 F.2d 1046 (9th Cir. 1981), we stated:
The cash method of accounting will usually result
in some distortion of income because the benefits
derived from payments for expenses or materials extend
to varying degrees into more than one annual accounting
period. If the cash method is consistently utilized
and no attempt is made to unreasonably prepay expenses
or purchase supplies in advance, the distortion is not
material and over a period of years the distortions
will tend to cancel out each other. * * *
We are satisfied from the record in the instant case that
the hospitals made no attempt to unreasonably prepay expenses or
purchase supplies in advance or to intentionally delay the
billing of receivables to defer collections to the next taxable
year. There is no evidence that the hospitals' books are kept
inaccurately, unfairly, or dishonestly.
Section 1.446-1(a)(2), Income Tax Regs., expressly
recognizes that a uniform accounting method cannot be prescribed
for all taxpayers and that the appropriateness of any given
method will depend upon the taxpayer's needs. RECO Indus. v.
Commissioner, 83 T.C. 912, 928 (1984). The method of accounting
and the nature of a taxpayer's trade or business are
inextricable. Accordingly, industry practice and trade custom,
although not dispositive, are factors to be considered in
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