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attributable to those hospitals, office buildings, and related
medical facilities that the New Parent continued to own and
operate is to be included in the income of the New Parent ratably
over the remaining applicable spread period. The parties do not
agree, however, as to the proper tax treatment of the portion of
the section 481(a) adjustment that is attributable to the
Facilities transferred to the Category B Corporation, the stock
of which was then transferred to HCAII and immediately sold to
HealthTrust. Respondent contends that the New Parents ceased to
engage in the trade or business of the Facilities and,
consequently, the New Parents must include in income for 1987 all
of the section 481(a) adjustments relating to the change in
method of accounting required by section 448(a) that are
attributable to the Facilities. Petitioners counter that the New
Parents retained the deferred tax liability for the 10-year
spread of the section 481(a) adjustment applicable to the
Category B Corporations, the New Parents continued to engage in
their trade or business of owning and operating hospitals, and
therefore they may continue to report ratably in income over the
remaining applicable spread period the portion of the section
481(a) adjustments required under section 448(a) that are
attributable to the Facilities.
Petitioners contend that the New Parents are not required to
include in income for 1987 the entire balance of the positive
section 481(a) adjustments relating to the change in method of
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