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is a sale or termination of one of several businesses being
conducted by the taxpayer. In respondent's view, the New Parents
ceased to conduct the business of those hospitals transferred to
the Category B Corporations and then sold to HealthTrust;
therefore, the New Parents are not entitled to spread over 10
years any portion of the section 481(a) adjustments attributable
to those hospitals. Thus, respondent maintains, the New Parents
must recognize for 1987 all of the section 481(a) adjustments
relating to the change in method of accounting attributable to
the Category B Corporations.
Petitioners counter that in the instant case the section
481(a) adjustments relate to the trade or business of operating
hospitals, and that no petitioner ceased to engage in that trade
or business. Petitioners argue that respondent's position
interprets the provisions of section 1.448-1(g)(3)(iii), Income
Tax Regs.,13 as if the principles of Rev. Proc. 84-74, 1984-2
13 In their opening brief, petitioners refer to sec. 1.448-
1(g)(3)(iii), Income Tax Regs., as temporary regulations. Prior
to modification by the final regulations, the applicable
cessation of business provision reads as follows:
(iii) Cessation of trade or business. If a taxpayer
ceases to engage in the trade or business to which the
section 481(a) adjustment relates prior to the expiration of
the adjustment period described in paragraph (g)(2)(i) or
(ii) of this section, the taxpayer must take into account,
in the year of such cessation, the balance of the adjustment
not previously taken into account in computing taxable
income. If the taxpayer is acquired in a transaction to
which section 381 applies, and the acquiring corporation
continues to engage in the trade or business to which the
(continued...)
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