Hospital Corporation of America and Subsidiaries - Page 17

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          Respondent maintains that petitioners' records do not properly              
          allocate accounts receivable between income earned from the sale            
          of services and income earned from the sale of inventory;                   
          therefore, petitioners cannot use the nonaccrual-experience                 
          method because they cannot establish the portion of their income            
          that is derived solely from the performance of services.                    
               The question is one of first impression.                               
          The Nonaccrual-Experience Method Formula                                    
               The temporary regulations apply the nonaccrual-experience              
          method formula to each separate trade or business of a taxpayer.            
          Sec. 1.448-2T(e)(1), Temporary Income Tax Regs.,10 52 Fed. Reg.             

          10  Sec. 1.448-2T(e), Temporary Income Tax Regs., as amended,               
          provides in pertinent part as follows:                                      
                    (e) Use of experience to estimate uncollectible                   
               amounts--(1) In general.  In determining the portion of                
               any amount due which, on the basis of experience, will                 
               not be collected, the formula prescribed by paragraph                  
               (e)(2) of this section shall be used by the taxpayer                   
               with respect to each separate trade or business of the                 
               taxpayer.  No other method or formula may be used by a                 
               taxpayer in determining the uncollectible amounts under                
               this section.                                                          
                    (2) Six-year moving average--(i) General rule.                    
               For any taxable year the uncollectible amount of a                     
               receivable is the amount of that receivable which bears                
               the same ratio to the account receivable outstanding at                
               the close of the taxable year as (A) the total bad                     
               debts (with respect to accounts receivable) sustained                  
               throughout the period consisting of the taxable year                   
               and the five preceding taxable years (or, with the                     
               approval of the Commissioner, a shorter period),                       
               adjusted for recoveries of bad debts during such                       
               period, bears to (B) the sum of the accounts receivable                
               earned throughout the entire six (or fewer) taxable                    
                                                             (continued...)           




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