- 16 -
receivables. The nonaccrual-experience method is treated as a
method of accounting. Sec. 1.448-2T(b), Temporary Income Tax
Regs., 52 Fed. Reg. 22774-22775 (June 16, 1987).
The Positions of the Parties
Petitioners contend that the Amended Temporary Regulations
are invalid because they are inconsistent with the plain meaning
of section 448(d)(5). Petitioners maintain that Congress
expressly authorized use of the Black Motor formula to compute
the Uncollectible Amount. Additionally, petitioners contend that
their accounts receivable are derived entirely from the
performance of services and, as a result, the Uncollectible
Amount should be determined with respect to all of their accounts
receivable. Petitioners further assert that, for those
petitioners which had short taxable years for 1987 because their
stock was sold, the Black Motor formula must be applied in
conjunction with the periodic system by annualizing the writeoffs
of bad debts to avoid a distortion for that year.
Respondent contends, on the other hand, that the Amended
Formula is taken directly from the legislative history of section
448 and is consistent with the statute's plain language, origin,
and purposes. Respondent maintains that the Amended Regulations
are a valid interpretation of congressional intent and properly
compute the Uncollectible Amount. Additionally, respondent
contends that the hospitals sell substantial amounts of medical
supplies to their patients in addition to performing services.
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011