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petitioners had understated the values of the Securities. For
the value of the Preferred Stock, respondent used the liquidation
value of the class A preferred stock and the class B preferred
stock. For the value of the Common Stock Warrants, respondent
used the value of the Common Stock Warrants determined by J.C.
Bradford and without consideration of the adjustment agreed to
between HealthTrust and the SEC. Respondent determined that the
values of the Securities were as follows:
Security Value
Class A preferred stock
(5,200,000 @ $50 per share) $260,000,000
Class B preferred stock
(4,000,000 @ $50 per share) 200,000,000
Common stock warrants (17,741,379
@ $5.98 per warrant) 106,093,446
Total 566,093,446
Respondent made additional adjustments to the sales price of the
stock of the Subsidiaries to reflect misclassified selling
expenses as well as adjustments to the basis of that stock.7
Those adjustments are not at issue in the instant opinion and for
simplicity will not be detailed herein. In the aggregate
7 One of the adjustments to basis pertained to the proper
treatment of the 10-year spread of a sec. 481(a) adjustment
resulting from certain petitioners' changing their methods of
accounting from the cash or hybrid methods to an overall accrual
method for the tax year ended 1987 to conform to the requirements
of sec. 448. We addressed petitioners' challenge to respondent's
interpretation of sec. 448(d)(7), which specifies the applicable
spread period, in an Opinion issued Sept. 12, 1996. See Hospital
Corp. of Am. v. Commissioner, 107 T.C. 73 (1996).
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