Hospital Corporation of America and Subsidiaries - Page 26

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          11  (...continued)                                                          
                         (1)  General rule.--For purposes of subsection               
                    (a), the reasonable addition to the reserve for bad               
                    debts of any financial institution to which this                  
                    section applies shall be an amount determined by the              
                    taxpayer which shall not exceed the addition to the               
                    reserve for losses on loans determined under the                  
                    experience method as provided in paragraph (2).                   
                         (2)  Experience method.--The amount determined               
                    under this paragraph for a taxable year shall be the              
                    amount necessary to increase the balance of the reserve           
                    for losses on loans (at the close of the taxable year)            
                    to the greater of--                                               
                              (A) the amount which bears the same ratio to            
                         loans outstanding at the close of the taxable year           
                         as (i) the total bad debts sustained during the              
                         taxable year and the 5 preceding taxable years               
                         (or, with the approval of the Secretary, a shorter           
                         period), adjusted for recoveries of bad debts                
                         during such period, bears to (ii) the sum of the             
                         loans outstanding at the close of such 6 or fewer            
                         taxable years, or                                            
                              (B) the lower of--                                      
                                   (i) the balance of the reserve at the              
                              close of the base year, or                              
                                   (ii) if the amount of loans outstanding            
                              at the close of the taxable year is less than           
                              the amount of loans outstanding at the close            
                              of the base year, the amount which bears the            
                              same ratio to loans outstanding at the close            
                              of the taxable year as the balance of the               
                              reserve at the close of the base year bears             
                              to the amount of loans outstanding at the               
                              close of the base year.                                 
                    For purposes of this paragraph the base year shall be             
                    the last taxable year before the most recent adoption             
                    of the experience method, except that for taxable years           
                    beginning after 1987 the base year shall be the last              
                    taxable year beginning before 1988.                               
                                                             (continued...)           




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