Hospital Corporation of America and Subsidiaries - Page 35

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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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