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the hybrid method of accounting for taxable years ended prior to
1987. For taxable years ended after 1987, the New Parents
continued to report ratably over the remaining 9 years the
balance of the section 481(a) adjustments relating to the change
in method of accounting required by section 448(a), including the
portion of those section 481(a) adjustments attributable to the
Facilities.
In the notice of deficiency, respondent did not adjust
HCAII's basis in the stock of the Category A Corporations. As to
the Category B Corporations, however, respondent determined that
the New Parents had to include in income for taxable year ended
1987 the entire positive section 481(a) adjustments relating to
the change in method of accounting that were attributable to the
Facilities. Accordingly, to effectuate that determination, for
purposes of determining the gain from the sale of the stock of
the Category B Corporations to HealthTrust, respondent reduced
HCAII's basis in each Category B Corporation by the amount of its
positive section 481(a) adjustment relating to the change in
method of accounting that had not already been included in
income.
OPINION
During 1987, pursuant to a restructuring plan, HCA divested
itself of 104 hospitals, approximately 90 professional office
buildings, and related medical facilities that were owned and
operated by various wholly owned subsidiaries of HCA. In some
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