During fiscal years 1997 and 1996, the Company recognized a portion of the refunds received as a tax benefit of $0.3 million and $2.4 million, respectively. The balance of the refunds received, $12.1 million, is recorded as a deferred liability, "Unbenefitted tax refunds received" pending resolution by the Internal Revenue Service ("IRS") of the appropriateness of the Section 172(f) carryback. The additional refunds requested under Section 172(f) for prior years of $7.7 million have not been received, nor has the Company recognized any tax benefit related to these potential refunds.
Additionally, one contract includes a provision that the Company, through its contract with this HMO, receives additional funds directly from a state reinsurance program. During the quarter ended May 31, 2001, the Company filed reinsurance claims totaling approximately $0.8 million. This amount was included in revenue with a corresponding amount as claims expense in the accompanying financial statements. Additionally, as these reinsurance claim amounts remain outstanding as of May 31, 2001, the Company has reported the $0.8 million as a component of accounts receivable, with a corresponding amount that has been included in accrued claims payable, in the accompanying balance sheet. In the event that these reinsurance amounts are not collected by the Company, the Company could remain liable to perform services for the specific members that qualify for such reimbursements. Subsequent to May 31, 2001, the Company has collected 100% of the $0.8 million that was included in accounts receivable at May 31, 2001. For non-reinsurance claims incurred but not reported under this contract, the Company estimates its claims payable using a similar method as that used for other existing contracts. As of May 31, 2001, there was a limited amount of historical data available to the Company for use in such estimates specific to this contract. Thus, actual results could differ from the claims payable amount reported as of May 31, 2001. While the Company believes its estimate to be adequate, management will review and make any necessary changes to its estimate as additional data becomes available.
Other receivable at May 31, 2001 and 2000 represents $2.5 million paid to a vendor to prepare a federal income tax refund that is more fully described in Note 13. The costs incurred will be refunded to the Company should the Internal Revenue Service ("IRS") disallow the refund and require its repayment. To the extent that all or some portion of the refund is allowed by the IRS, the fees paid will be recognized as expense in proportion to the amount of refund allowed.
If the IRS were to disallow the refunds claimed, or the terms of the Offer in Compromise as presented or modified are not adhered to, the Company will have additional loss carry forwards of approximately $50 million, which will expire if unused by the year 2010.
On March 11, 1999, the Company sold its Aurora, Colorado hospital for $3.3 million of cash plus a $1.2 million note receivable (see Note 9), and recognized a loss on sale of $416,000. This sale completed the Company's plan to dispose of its hospital business segment. Financial information relating to the operation of the discontinued hospital business follows: