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prior to January 1, 1987, changed their method of accounting to
that method. Commencing with taxable year ended 1987 those
petitioners took into account positive section 481(a)
adjustments4 necessary to effect the change to an overall accrual
method over the periods provided by section 448(d)(7)(C).5 Thus,
on the consolidated return for taxable year ended 1987, those
petitioners operating hospitals not theretofore reporting on an
4 Sec. 481(a) provides generally that, if a taxpayer's method
of accounting is changed from the method used for the preceding
taxable year, adjustments determined necessary solely by reason
of the change to prevent amounts from being duplicated or omitted
are to be taken into account for the year of change to compute
taxable income. A positive sec. 481(a) adjustment increases
taxable income, and a negative sec. 481(a) adjustment decreases
taxable income. Sec. 481(c) additionally provides generally that
the sec. 481(a) adjustment may be taken into account over the
period and pursuant to the terms and conditions permitted by
regulations. See also sec. 1.481-5, Income Tax Regs., now
incorporated in sec. 1.481-4, Income Tax Regs.
5 Sec. 448(d)(7) provides as follows:
(7) Coordination with section 481.--In the case of
any taxpayer required by this section to change its
method of accounting for any taxable year--
(A) such change shall be treated as initiated
by the taxpayer,
(B) such change shall be treated as made with
the consent of the Secretary, and
(C) the period for taking into account the
adjustments under section 481 by reason of such
change--
(i) except as provided in clause (ii),
shall not exceed 4 years, and
(ii) in the case of a hospital, shall be
10 years.
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