Internal Revenue Code:Sec. 460. Special rules for long-term contracts
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Contents |
Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
Statute
Sec. 460. Special rules for long-term contracts
(a) Requirement that percentage of completion method be used
In the case of any long-term contract, the taxable income from
such contract shall be determined under the percentage of
completion method (as modified by subsection (b)).
(b) Percentage of completion method
(1) Requirements of percentage of completion method
Except as provided in paragraph (3), in the case of any
long-term contract with respect to which the percentage of
completion method is used -
(A) the percentage of completion shall be determined by
comparing costs allocated to the contract under subsection (c)
and incurred before the close of the taxable year with the
estimated total contract costs, and
(B) upon completion of the contract (or, with respect to any
amount properly taken into account after completion of the
contract, when such amount is so properly taken into account),
the taxpayer shall pay (or shall be entitled to receive)
interest computed under the look-back method of paragraph (2).
In the case of any long-term contract with respect to which the
percentage of completion method is used, except for purposes of
applying the look-back method of paragraph (2), any income under
the contract (to the extent not previously includible in gross
income) shall be included in gross income for the taxable year
following the taxable year in which the contract was completed.
For purposes of subtitle F (other than sections 6654 and 6655),
any interest required to be paid by the taxpayer under
subparagraph (B) shall be treated as an increase in the tax
imposed by this chapter for the taxable year in which the
contract is completed (or, in the case of interest payable with
respect to any amount properly taken into account after
completion of the contract, for the taxable year in which the
amount is so properly taken into account).
(2) Look-back method
The interest computed under the look-back method of this
paragraph shall be determined by -
(A) first (FOOTNOTE 1) allocating income under the contract
among taxable years before the year in which the contract is
completed on the basis of the actual contract price and costs
instead of the estimated contract price and costs,
(FOOTNOTE 1) So in original. Probably should be followed by a
comma.
(B) second, determining (solely for purposes of computing
such interest) the overpayment or underpayment of tax for each
taxable year referred to in subparagraph (A) which would result
solely from the application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in
paragraph (7)), compounded daily, on the overpayment or
underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any amount properly taken
into account after completion of the contract shall be taken into
account by discounting (using the Federal mid-term rate
determined under section 1274(d) as of the time such amount was
properly taken into account) such amount to its value as of the
completion of the contract. The taxpayer may elect with respect
to any contract to have the preceding sentence not apply to such
contract.
(3) Special rules
(A) Simplified method of cost allocation
In the case of any long-term contract, the Secretary may
prescribe a simplified procedure for allocation of costs to
such contract in lieu of the method of allocation under
subsection (c).
(B) Look-back method not to apply to certain contracts
Paragraph (1)(B) shall not apply to any contract -
(i) the gross price of which (as of the completion of the
contract) does not exceed the lesser of -
(I) $1,000,000, or
(II) 1 percent of the average annual gross receipts of
the taxpayer for the 3 taxable years preceding the taxable
year in which the contract was completed, and
(ii) which is completed within 2 years of the contract
commencement date.
For purposes of this subparagraph, rules similar to the rules
of subsections (e)(2) and (f)(3) shall apply.
(4) Simplified look-back method for pass-thru entities
(A) In general
In the case of a pass-thru entity -
(i) the look-back method of paragraph (2) shall be applied
at the entity level,
(ii) in determining overpayments and underpayments for
purposes of applying paragraph (2)(B) -
(I) any increase in the income under the contract for any
taxable year by reason of the allocation under paragraph
(2)(A) shall be treated as giving rise to an underpayment
determined by applying the highest rate for such year to
such increase, and
(II) any decrease in such income for any taxable year by
reason of such allocation shall be treated as giving rise
to an overpayment determined by applying the highest rate
for such year to such decrease, and
(iii) any interest required to be paid by the taxpayer
under paragraph (2) shall be paid by such entity (and any
interest entitled to be received by the taxpayer under
paragraph (2) shall be paid to such entity).
(B) Exceptions
(i) Closely held pass-thru entities
This paragraph shall not apply to any closely held
pass-thru entity.
(ii) Foreign contracts
This paragraph shall not apply to any contract unless
substantially all of the income from such contract is from
sources in the United States.
(C) Other definitions
For purposes of this paragraph -
(i) Highest rate
The term ''highest rate'' means -
(I) the highest rate of tax specified in section 11, or
(II) if at all times during the year involved more than
50 percent of the interests in the entity are held by
individuals directly or through 1 or more other pass-thru
entities, the highest rate of tax specified in section 1.
(ii) Pass-thru entity
The term ''pass-thru entity'' means any -
(I) partnership,
(II) S corporation, or
(III) trust.
(iii) Closely held pass-thru entity
The term ''closely held pass-thru entity'' means any
pass-thru entity if, at any time during any taxable year for
which there is income under the contract, 50 percent or more
(by value) of the beneficial interests in such entity are
held (directly or indirectly) by or for 5 or fewer persons.
For purposes of the preceding sentence, rules similar to the
constructive ownership rules of section 1563(e) shall apply.
(5) Election to use 10-percent method
(A) General rule
In the case of any long-term contract with respect to which
an election under this paragraph is in effect, the 10-percent
method shall apply in determining the taxable income from such
contract.
(B) 10-percent method
For purposes of this paragraph -
(i) In general
The 10-percent method is the percentage of completion
method, modified so that any item which would otherwise be
taken into account in computing taxable income with respect
to a contract for any taxable year before the 10-percent year
is taken into account in the 10-percent year.
(ii) 10-percent year
The term ''10-percent year'' means the 1st taxable year as
of the close of which at least 10 percent of the estimated
total contract costs have been incurred.
(C) Election
An election under this paragraph shall apply to all long-term
contracts of the taxpayer which are entered into during the
taxable year in which the election is made or any subsequent
taxable year.
(D) Coordination with other provisions
(i) Simplified method of cost allocation
This paragraph shall not apply to any taxpayer which uses a
simplified procedure for allocation of costs under paragraph
(3)(A).
(ii) Look-back method
The 10-percent method shall be taken into account for
purposes of applying the look-back method of paragraph (2) to
any taxpayer making an election under this paragraph.
(6) Election to have look-back method not apply in de minimis
cases
(A) Amounts taken into account after completion of contract
Paragraph (1)(B) shall not apply with respect to any taxable
year (beginning after the taxable year in which the contract is
completed) if -
(i) the cumulative taxable income (or loss) under the
contract as of the close of such taxable year, is within
(ii) 10 percent of the cumulative look-back taxable income
(or loss) under the contract as of the close of the most
recent taxable year to which paragraph (1)(B) applied (or
would have applied but for subparagraph (B)).
(B) De minimis discrepancies
Paragraph (1)(B) shall not apply in any case to which it
would otherwise apply if -
(i) the cumulative taxable income (or loss) under the
contract as of the close of each prior contract year, is
within
(ii) 10 percent of the cumulative look-back income (or
loss) under the contract as of the close of such prior
contract year.
(C) Definitions
For purposes of this paragraph -
(i) Contract year
The term ''contract year'' means any taxable year for which
income is taken into account under the contract.
(ii) Look-back income or loss
The look-back income (or loss) is the amount which would be
the taxable income (or loss) under the contract if the
allocation method set forth in paragraph (2)(A) were used in
determining taxable income.
(iii) Discounting not applicable
The amounts taken into account after the completion of the
contract shall be determined without regard to any
discounting under the 2nd sentence of paragraph (2).
(D) Contracts to which paragraph applies
This paragraph shall only apply if the taxpayer makes an
election under this subparagraph. Unless revoked with the
consent of the Secretary, such an election shall apply to all
long-term contracts completed during the taxable year for which
election is made or during any subsequent taxable year.
(7) Adjusted overpayment rate
(A) In general
The adjusted overpayment rate for any interest accrual period
is the overpayment rate in effect under section 6621 for the
calendar quarter in which such interest accrual period begins.
(B) Interest accrual period
For purposes of subparagraph (A), the term ''interest accrual
period'' means the period -
(i) beginning on the day after the return due date for any
taxable year of the taxpayer, and
(ii) ending on the return due date for the following
taxable year.
For purposes of the preceding sentence, the term ''return due
date'' means the date prescribed for filing the return of the
tax imposed by this chapter (determined without regard to
extensions).
(c) Allocation of costs to contract
(1) Direct and certain indirect costs
In the case of a long-term contract, all costs (including
research and experimental costs) which directly benefit, or are
incurred by reason of, the long-term contract activities of the
taxpayer shall be allocated to such contract in the same manner
as costs are allocated to extended period long-term contracts
under section 451 and the regulations thereunder.
(2) Costs identified under cost-plus and certain Federal
contracts
In the case of a cost-plus long-term contract or a Federal
long-term contract, any cost not allocated to such contract under
paragraph (1) shall be allocated to such contract if such cost is
identified by the taxpayer (or a related person), pursuant to the
contract or Federal, State, or local law or regulation, as being
attributable to such contract.
(3) Allocation of production period interest to contract
(A) In general
Except as provided in subparagraphs (B) and (C), in the case
of a long-term contract, interest costs shall be allocated to
the contract in the same manner as interest costs are allocated
to property produced by the taxpayer under section 263A(f).
(B) Production period
In applying section 263A(f) for purposes of subparagraph (A),
the production period shall be the period -
(i) beginning on the later of -
(I) the contract commencement date, or
(II) in the case of a taxpayer who uses an accrual method
with respect to long-term contracts, the date by which at
least 5 percent of the total estimated costs (including
design and planning costs) under the contract have been
incurred, and
(ii) ending on the contract completion date.
(C) Application of de minimis rule
In applying section 263A(f) for purposes of subparagraph (A),
paragraph (1)(B)(iii) of such section shall be applied on a
contract-by-contract basis; except that, in the case of a
taxpayer described in subparagraph (B)(i)(II) of this
paragraph, paragraph (1)(B)(iii) of section 263A(f) shall be
applied on a property-by-property basis.
(4) Certain costs not included
This subsection shall not apply to any -
(A) independent research and development expenses,
(B) expenses for unsuccessful bids and proposals, and
(C) marketing, selling, and advertising expenses.
(5) Independent research and development expenses
For purposes of paragraph (4), the term ''independent research
and development expenses'' means any expenses incurred in the
performance of research or development, except that such term
shall not include -
(A) any expenses which are directly attributable to a
long-term contract in existence when such expenses are
incurred, or
(B) any expenses under an agreement to perform research or
development.
(d) Federal long-term contract
For purposes of this section -
(1) In general
The term ''Federal long-term contract'' means any long-term
contract -
(A) to which the United States (or any agency or
instrumentality thereof) is a party, or
(B) which is a subcontract under a contract described in
subparagraph (A).
(2) Special rules for certain taxable entities
For purposes of paragraph (1), the rules of section
168(h)(2)(D) (relating to certain taxable entities not treated as
instrumentalities) shall apply.
(e) Exception for certain construction contracts
(1) In general
Subsections (a), (b), and (c)(1) and (2) shall not apply to -
(A) any home construction contract, or
(B) any other construction contract entered into by a
taxpayer -
(i) who estimates (at the time such contract is entered
into) that such contract will be completed within the 2-year
period beginning on the contract commencement date of such
contract, and
(ii) whose average annual gross receipts for the 3 taxable
years preceding the taxable year in which such contract is
entered into do not exceed $10,000,000.
In the case of a home construction contract with respect to which
the requirements of clauses (i) and (ii) of subparagraph (B) are
not met, section 263A shall apply notwithstanding subsection
(c)(4) thereof.
(2) Determination of taxpayer's gross receipts
For purposes of paragraph (1), the gross receipts of -
(A) all trades or businesses (whether or not incorporated)
which are under common control with the taxpayer (within the
meaning of section 52(b)),
(B) all members of any controlled group of corporations of
which the taxpayer is a member, and
(C) any predecessor of the taxpayer or a person described in
subparagraph (A) or (B),
for the 3 taxable years of such persons preceding the taxable
year in which the contract described in paragraph (1) is entered
into shall be included in the gross receipts of the taxpayer for
the period described in paragraph (1)(B). The Secretary shall
prescribe regulations which provide attribution rules that take
into account, in addition to the persons and entities described
in the preceding sentence, taxpayers who engage in construction
contracts through partnerships, joint ventures, and corporations.
(3) Controlled group of corporations
For purposes of this subsection, the term ''controlled group of
corporations'' has the meaning given to such term by section
1563(a), except that -
(A) ''more than 50 percent'' shall be substituted for ''at
least 80 percent'' each place it appears in section 1563(a)(1),
and
(B) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
(4) Construction contract
For purposes of this subsection, the term ''construction
contract'' means any contract for the building, construction,
reconstruction, or rehabilitation of, or the installation of any
integral component to, or improvements of, real property.
(5) Special rule for residential construction contracts which are
not home construction contracts
In the case of any residential construction contract which is
not a home construction contract, subsection (a) (as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1989) shall apply except that such
subsection shall be applied -
(A) by substituting ''70 percent'' for ''90 percent'' each
place it appears, and
(B) by substituting ''30 percent'' for ''10 percent''.
(6) Definitions relating to residential construction contracts
For purposes of this subsection -
(A) Home construction contract
The term ''home construction contract'' means any
construction contract if 80 percent or more of the estimated
total contract costs (as of the close of the taxable year in
which the contract was entered into) are reasonably expected to
be attributable to activities referred to in paragraph (4) with
respect to -
(i) dwelling units (as defined in section 168(e)(2)(A)(ii))
contained in buildings containing 4 or fewer dwelling units
(as so defined), and
(ii) improvements to real property directly related to such
dwelling units and located on the site of such dwelling
units.
For purposes of clause (i), each townhouse or rowhouse shall be
treated as a separate building.
(B) Residential construction contract
The term ''residential construction contract'' means any
contract which would be described in subparagraph (A) if clause
(i) of such subparagraph reads as follows:
''(i) dwelling units (as defined in section
168(e)(2)(A)(ii)), and''.
(f) Long-term contract
For purposes of this section -
(1) In general
The term ''long-term contract'' means any contract for the
manufacture, building, installation, or construction of property
if such contract is not completed within the taxable year in
which such contract is entered into.
(2) Special rule for manufacturing contracts
A contract for the manufacture of property shall not be treated
as a long-term contract unless such contract involves the
manufacture of -
(A) any unique item of a type which is not normally included
in the finished goods inventory of the taxpayer, or
(B) any item which normally requires more than 12 calendar
months to complete (without regard to the period of the
contract).
(3) Aggregation, etc.
For purposes of this subsection, under regulations prescribed
by the Secretary -
(A) 2 or more contracts which are interdependent (by reason
of pricing or otherwise) may be treated as 1 contract, and
(B) a contract which is properly treated as an aggregation of
separate contracts may be so treated.
(g) Contract commencement date
For purposes of this section, the term ''contract commencement
date'' means, with respect to any contract, the first date on which
any costs (other than bidding expenses or expenses incurred in
connection with negotiating the contract) allocable to such
contract are incurred.
(h) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations to prevent the use of related parties,
pass-thru entities, intermediaries, options, or other similar
arrangements to avoid the application of this section.
Sources
(Added Pub. L. 99-514, title VIII, Sec. 804(a), Oct. 22, 1986, 100
Stat. 2358; amended Pub. L. 100-203, title X, Sec. 10203(a), Dec.
22, 1987, 101 Stat. 1330-394; Pub. L. 100-647, title I, Sec.
1008(c)(1), (2), (4), title V, Sec. 5041(a)-(b)(3), (c), (d), Nov.
10, 1988, 102 Stat. 3438, 3439, 3673, 3674; Pub. L. 101-239, title
VII, Sec. 7621(a)-(c), 7811(e), 7815(e)(1), Dec. 19, 1989, 103
Stat. 2375, 2376, 2408, 2419; Pub. L. 101-508, title XI, Sec.
11812(b)(8), Nov. 5, 1990, 104 Stat. 1388-535; (As amended Pub. L.
104-188, title I, Sec. 1702(h)(15), 1704(t)(28), Aug. 20, 1996, 110
Stat. 1874, 1888; Pub. L. 105-34, title XII, Sec. 1211(a), (b),
Aug. 5, 1997, 111 Stat. 998, 999.)
References in Text
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1989, referred to in subsec. (e)(5), is the date of enactment of
title VII of Pub. L. 101-239, which was approved Dec. 19, 1989.
Miscellaneous
AMENDMENTS
2005, P.L. 109-135, Section 403
(s) Amendments Related to Section 708 of the Act.--Section 708 of
the <<NOTE: 26 USC 460 note.>> American Jobs Creation Act of 2004 is
amended--
(1) in subsection (a), by striking ``contract commencement
date'' and inserting ``construction commencement date'', and
(2) by redesignating subsection (d) as subsection (e) and
inserting after subsection (c) the following new subsection:
``(d) Certain Adjustments Not to Apply.--Section 481 of the Internal
Revenue Code of 1986 shall not apply with respect to any change in the
method of accounting which is required by this section.''.
2004 - Subsec.708, Pub.L.108-357, clarifies the Method of
Accounting for Naval Shipbuilders:
(a) In General.--In the case of a qualified naval ship contract,
the taxable income of such contract during the 5-taxable
year period beginning with the taxable year in which the construction
commencement date occurs shall be determined under a method
identical to the method used in the case of a qualified ship
contract (as defined in section 10203(b)(2)(B) of the
Revenue Act of 1987).
(b) Recapture of Tax Benefit.--In the case of a qualified naval
ship contract to which subsection (a) applies, the taxpayer's
tax imposed by chapter 1 of the Internal Revenue Code
of 1986 for the first taxable year following the 5-taxable
year period described in subsection (a) shall be
increased by the excess (if any) of--
(1) the amount of tax which would have been imposed during
such period if this section had not been enacted, over
(2) the amount of tax so imposed during such period.
(c) Qualified Naval Ship Contract.--For purposes of this section:
(1) In general.--The term ``qualified naval ship contract''
means any contract or portion thereof that is for the
construction in the United States of 1 ship or submarine for the
Federal Government if the taxpayer reasonably expects the
acceptance date will occur no later than 9 years after the
construction commencement date.
(2) Acceptance date.--The term ``acceptance date'' means the
date 1 year after the date on which the Federal Government
issues a letter of acceptance or other similar document for the
ship or submarine.
(3) Construction commencement date.--The term ``construction
commencement date'' means the date on which the physical
fabrication of any section or component of the ship or submarine
begins in the taxpayer's shipyard.
(d) Certain Adjustments Not to Apply.--Section 481 of the Internal
Revenue Code of 1986 shall not apply with respect to any change in the
method of accounting which is required by this section.''.
(e) Effective Date.--This section shall apply to contracts for
ships or submarines with respect to which the construction
commencement date occurs after the date of the enactment
of this Act.
1997 - Subsec. (b)(2)(C). Pub. L. 105-34, Sec. 1211(b)(1),
substituted ''the adjusted overpayment rate (as defined in
paragraph (7))'' for ''the overpayment rate established by section
6621''.
Subsec. (b)(6). Pub. L. 105-34, Sec. 1211(a), added par. (6).
Subsec. (b)(7). Pub. L. 105-34, Sec. 1211(b)(2), added par. (7).
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1704(t)(28), which
directed that par. (1) be amended by substituting ''the look-back
method of paragraph (2)'' for ''the look-back method of paragraph
(3)'', could not be executed, because that phrase does not appear
in text. See 1989 Amendment note below.
Subsec. (e)(6)(B). Pub. L. 104-188, Sec. 1702(h)(15), substituted
''section 168(e)(2)(A)(ii)'' for ''section 167(k)''.
1990 - Subsec. (e)(6)(A)(i). Pub. L. 101-508 substituted
''section 168(e)(2)(A)(ii)'' for ''section 167(k)''.
1989 - Subsec. (a). Pub. L. 101-239, Sec. 7621(a), substituted
''Requirement that percentage of completion method be used'' for
''Percentage of completion-capitalized cost method'' in heading and
amended text generally. Prior to amendment, text read as follows:
''(1) In general. - In the case of any long-term contract -
''(A) 90 percent of the items with respect to such contract
shall be taken into account under the percentage of completion
method (as modified by subsection (b)), and
''(B) 10 percent of the items with respect to such contract
shall be taken into account under the taxpayer's normal method of
accounting.
''(2) 90 percent look-back method to apply. - Upon completion of
any long-term contract (or, with respect to any amount properly
taken into account after completion of the contract, when such
amount is so properly taken into account), the taxpayer shall pay
(or shall be entitled to receive) interest determined by applying
the look-back method of subsection (b)(3) to 90 percent of the
items with respect to the contract.''
Subsec. (a)(2). Pub. L. 101-239, Sec. 7811(e)(1), inserted ''(or,
with respect to any amount properly taken into account after
completion of the contract, when such amount is so properly taken
into account)'' after ''any long-term contract''.
Subsec. (b)(1). Pub. L. 101-239, Sec. 7621(c)(2)(A), substituted
''paragraph (3)'' for ''paragraph (4)''.
Pub. L. 101-239, Sec. 7621(c)(2)(B), which directed the amendment
of par. (1) by substituting ''paragraph (2)'' for ''paragraph
(3)'', was executed by making the substitution in subpar. (B) and
concluding provisions to reflect the probable intent of Congress.
Pub. L. 101-239, Sec. 7621(c)(1), redesignated par. (2) as (1)
and struck out former par. (1) which read as follows: ''Subsection
(a) not to apply where percentage of completion method used. -
Subsection (a) shall not apply to any long-term contract with
respect to which amounts includible in gross income are determined
under the percentage of completion method.''
Subsec. (b)(2). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (3) as (2). Former par. (2) redesignated (1).
Pub. L. 101-239, Sec. 7811(e)(4), (6), inserted two sentences at
end.
Subsec. (b)(2)(B). Pub. L. 101-239, Sec. 7811(e)(2), substituted
''any amount properly taken into account'' for ''any amount
received or accrued'' and ''is so properly taken into account'' for
''is so received or accrued''.
Subsec. (b)(3). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (4) as (3). Former par. (3) redesignated (2).
Pub. L. 101-239, Sec. 7811(e)(3), in concluding provisions,
substituted ''any amount properly taken into account'' for ''any
amount received or accrued'' and ''such amount was properly taken
into account'' for ''such amount was received or accrued''.
Subsec. (b)(3)(B). Pub. L. 101-239, Sec. 7621(c)(3), substituted
''Paragraph (1)(B)'' for ''Paragraph (2)(B) and subsection (a)(2)''
in introductory provisions.
Subsec. (b)(4). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (5) as (4). Former par. (4) redesignated (3).
Subsec. (b)(4)(A)(i). Pub. L. 101-239, Sec. 7621(c)(4)(A),
substituted ''paragraph (2)'' for ''paragraph (3)''.
Subsec. (b)(4)(A)(ii). Pub. L. 101-239, Sec. 7621(c)(4)(B),
substituted ''paragraph (2)(B)'' for ''paragraph (3)(B)'' in
introductory provisions.
Subsec. (b)(4)(A)(ii)(I). Pub. L. 101-239, Sec. 7621(c)(4)(C),
substituted ''paragraph (2)(A)'' for ''paragraph (3)(A)''.
Subsec. (b)(4)(A)(iii). Pub. L. 101-239, Sec. 7621(c)(4)(A),
substituted ''paragraph (2)'' for ''paragraph (3)'' in two places.
Subsec. (b)(5). Pub. L. 101-239, Sec. 7621(b), added par. (5).
Pub. L. 101-239, Sec. 7621(c)(1), redesignated former par. (5) as
(4).
Subsec. (e)(2)(C). Pub. L. 101-239, Sec. 7811(e)(5), added
subpar. (C).
Subsec. (e)(5). Pub. L. 101-239, Sec. 7621(c)(5), inserted
introductory provisions and struck out former introductory
provisions which read as follows: ''In the case of any residential
construction contract which is not a home construction contract,
subsection (a) shall be applied - ''.
Subsec. (e)(6)(A). Pub. L. 101-239, Sec. 7815(e)(1)(A),
substituted ''activities referred to in paragraph (4) with respect
to'' for ''the building, construction, reconstruction, or
rehabilitation of''.
Subsec. (e)(6)(A)(i). Pub. L. 101-239, Sec. 7815(e)(1)(B), added
cl. (i) and struck out former cl. (i) which read as follows:
''dwelling units contained in buildings containing 4 or fewer
dwelling units, and''.
1988 - Subsec. (a)(1)(A). Pub. L. 100-647, Sec. 5041(a)(1),
substituted ''90'' for ''70''.
Subsec. (a)(1)(B). Pub. L. 100-647, Sec. 5041(a)(2), substituted
''10'' for ''30''.
Subsec. (a)(2). Pub. L. 100-647, Sec. 5041(a)(1), substituted
''90'' for ''70'' in heading and in text.
Subsec. (b)(2). Pub. L. 100-647, Sec. 1008(c)(2)(B), substituted
''Except as provided in paragraph (4), in'' for ''In''.
Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1008(c)(4)(B), inserted
''(or, with respect to any amount received or accrued after
completion of the contract, when such amount is so received or
accrued)'' after ''contract''.
Subsec. (b)(3). Pub. L. 100-647, Sec. 1008(c)(4)(A), inserted at
end ''For purposes of the preceding sentence, any amount received
or accrued after completion of the contract shall be taken into
account by discounting (using the Federal mid-term rate determined
under section 1274(d) as of the time such amount was received or
accrued) such amount to its value as of the completion of the
contract. The taxpayer may elect with respect to any contract to
have the preceding sentence not apply to such contract.''
Pub. L. 100-647, Sec. 1008(c)(1)(A), substituted ''paragraph''
for ''subparagraph''.
Subsec. (b)(3)(B). Pub. L. 100-647, Sec. 1008(c)(1)(B),
substituted ''subparagraph (A)'' for ''paragraph (1)'' in two
places.
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1008(c)(1)(C),
substituted ''subparagraph (B)'' for ''paragraph (1)''.
Subsec. (b)(4). Pub. L. 100-647, Sec. 1008(c)(2)(A), added par.
(4).
Subsec. (b)(5). Pub. L. 100-647, Sec. 5041(d), added par. (5).
Subsec. (e)(1). Pub. L. 100-647, Sec. 5041(b)(1), amended par.
(1) generally. Prior to amendment, par. (1) read as follows:
''Subsections (a), (b), and (c)(1) and (2) shall not apply to any
construction contract entered into by a taxpayer -
''(A) who estimates (at the time such contract is entered into)
that such contract will be completed within the 2-year period
beginning on the contract commencement date of such contract, and
''(B) whose average annual gross receipts for the 3 taxable
years preceding the taxable year in which such contract is
entered into do not exceed $10,000,000.''
Subsec. (e)(5). Pub. L. 100-647, Sec. 5041(b)(2), added par. (5).
Subsec. (e)(6). Pub. L. 100-647, Sec. 5041(b)(3), added par. (6).
Subsec. (h). Pub. L. 100-647, Sec. 5041(c), added subsec. (h).
1987 - Subsec. (a). Pub. L. 100-203 substituted ''70 percent''
for ''40 percent'' in par. (1)(A) and in heading and text of par.
(2), and ''30 percent'' for ''60 percent'' in par. (1)(B).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1211(c) of Pub. L. 105-34 provided that:
''(1) In general. - Except as provided in paragraph (2), the
amendments made by this section (amending this section) shall apply
to contracts completed in taxable years ending after the date of
the enactment of this Act (Aug. 5, 1997).
''(2) Subsection (b). - The amendments made by subsection (b)
(amending this section) shall apply for purposes of section 167(g)
of the Internal Revenue Code of 1986 to property placed in service
after September 13, 1995.''
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(h)(15) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L.
101-508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Nov. 5, 1990, but not applicable to any property to
which section 168 of this title does not apply by reason of subsec.
(f)(5) of section 168, and not applicable to rehabilitation
expenditures described in section 252(f)(5) of Pub. L. 99-514, see
section 11812(c) of Pub. L. 101-508, set out as a note under
section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7621(d) of Pub. L. 101-239 provided that:
''(1) In general. - Except as provided in paragraph (2), the
amendments made by this section (amending this section) shall apply
to contracts entered into on or after July 11, 1989.
''(2) Binding bids. - The amendments made by this section shall
not apply to any contract resulting from the acceptance of a bid
made before July 11, 1989. The preceding sentence shall apply only
if the bid could not have been revoked or altered at any time on or
after July 11, 1989.
''(3) Special rule for certain ship contracts. - The amendments
made by this section shall not apply in the case of a qualified
ship contract (as defined in section 10203(b)(2)(B) of the Revenue
Act of 1987 (Pub. L. 100-203, set out below)).''
Amendment by sections 7811(e) and 7815(e)(1) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(c)(1), (2), (4) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 5041(e) of Pub. L. 100-647, as amended by Pub. L.
101-239, title VII, Sec. 7815(e)(3), Dec. 19, 1989, 103 Stat. 2419,
provided that:
''(1) Subsections (a), (b), and (c). -
''(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by subsections (a), (b), and (c)
(amending this section and section 56 of this title) shall apply
to contracts entered into on or after June 21, 1988.
''(B) Binding bids. - The amendments made by subsections (a),
(b), and (c) shall not apply to any contract resulting from the
acceptance of a bid made before June 21, 1988. The preceding
sentence shall apply only if the bid could not have been revoked
or altered at any time on or after June 21, 1988.
''(C) Special rule for certain ship contracts. - The amendments
made by subsections (a) and (b) (amending this section and
section 56 of this title) shall not apply in the case of a
qualified ship contract (as defined in section 10203(b)(2)(B) of
the Revenue Act of 1987 (Pub. L. 100-203, set out below)).
''(2) Subsection (d). - The amendment made by subsection (d)
(amending this section) shall apply as if included in the
amendments made by section 804 of the Reform Act (Pub. L. 99-514);
except that such amendment shall not apply to any contract
completed in a taxable year ending before the date of the enactment
of this Act (Nov. 10, 1988), if the due date (determined with
regard to extensions) for the return for such year is before such
date of enactment.''
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10203(b) of Pub. L. 100-203 provided that:
''(1) In general. - Except as provided in paragraph (2), the
amendments made by this section (amending this section) shall apply
to contracts entered into after October 13, 1987.
''(2) Special rule for certain ship contracts. -
''(A) In general. - The amendments made by this section shall
not apply in the case of a qualified ship contract.
''(B) Qualified ship contract. - For purposes of subparagraph
(A), the term 'qualified ship contract' means any contract for
the construction in the United States of not more than 5 ships if
-
''(i) such ships will not be constructed (directly or
indirectly) for the Federal Government, and
''(ii) the taxpayer reasonably expects to complete such
contract within 5 years of the contract commencement date (as
defined in section 460(g) of the Internal Revenue Code of
1986).''
EFFECTIVE DATE OF 1986 AMENDMENT
Section 804(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(c)(3), Nov. 10, 1988, 102 Stat. 3439, provided
that:
''(1) In general. - The amendments made by this section (enacting
this section) shall apply to any contract entered into after
February 28, 1986.
''(2) Clarification of treatment of independent research and
development expenses. -
''(A) In general. - For periods before, on, or after the date
of enactment of this Act (Oct. 22, 1986) -
''(i) any independent research and development expenses taken
into account in determining the total contract price shall not
be severable from the contract, and
''(ii) any independent research and development expenses
shall not be treated as amounts chargeable to capital account.
''(B) Independent research and development expenses. - For
purposes of subparagraph (A), the term 'independent research and
development expenses' has the meaning given to such term by
section 460(c)(5) of the Internal Revenue Code of 1986, as added
by this section.''
REGULATIONS
Section 804(b) of Pub. L. 99-514 provided that: ''The Secretary
of the Treasury or his delegate shall modify the income tax
regulations relating to accounting for long-term contracts to carry
out the provisions of section 460 of the Internal Revenue Code of
1986 (as added by subsection (a)).''
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
AMORTIZATION OF PAST SERVICE PENSION COSTS
Allocable costs (within the meaning of subsec. (c) of this
section) with respect to any property to include contributions paid
to or under a pension or annuity plan whether or not such
contributions represent past service costs, see section 10204 of
Pub. L. 100-203, set out as a note under section 263A of this
title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 167 of this title.
