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transactions, not in yearend receivables. According to
petitioners, measuring the historical relationship between annual
bad debt writeoffs (net of recoveries) and total annual charges
may be appropriate for estimating the portion of annual charges
that are not likely to be collected but not for purposes of
estimating the portion of yearend accounts receivable that
probably will not be collected. Petitioners contend that the
Amended Formula produces incorrect results and is contrary to the
language and purpose of section 448(d)(5) because it requires the
hospitals to accrue as income amounts which, based on experience,
they will not collect.16
Petitioners assert that the Black Motor formula reasonably
reflects their bad debt experience and should be applied in the
instant case. Petitioners maintain that the Black Motor formula
was intended to provide an estimate of future uncollectibility
based on the taxpayer's actual recent collection experience.
16 According to petitioners, their tax department calculated
that petitioners' actual bad debt experience with respect to
accounts receivable outstanding at the end of 1990 shows that
approximately 21.4 percent of those accounts receivable was
uncollectible during 1991 and 1992. Moreover, with respect to
accounts receivable outstanding as of specified dates in 1987,
approximately 19 percent of those receivables was uncollectible
within a period of 1 year, and approximately 22 percent to 24
percent would become uncollectible within 2 years. In contrast,
petitioners contend, the Amended Formula produces exclusion
ratios of between 3.4 percent and 5.3 percent of revenue for
taxable year ended 1987 and between 2.6 percent and 4.0 percent
of revenue for taxable year ended 1988, depending upon whether
gross billings, billings net of contractual adjustments, or
billings exclusive of Medicare and Medicaid billings are used to
approximate annual charge transactions.
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