I.R.C. § 460(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)).
I.R.C. § 460(b) Percentage Of Completion Method
I.R.C. § 460(b)(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—
I.R.C. § 460(b)(1)(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
I.R.C. § 460(b)(1)(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).
I.R.C. § 460(b)(2) Look-Back Method —
The interest computed under the look-back method of this paragraph shall be determined
by—
I.R.C. § 460(b)(2)(A) —
first, 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,
I.R.C. § 460(b)(2)(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
I.R.C. § 460(b)(2)(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.
I.R.C. § 460(b)(3) Special Rules
I.R.C. § 460(b)(3)(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).
I.R.C. § 460(b)(3)(B) Look-Back Method Not To Apply To Certain Contracts —
Paragraph (1)(B) shall not apply to any contract—
I.R.C. § 460(b)(3)(B)(i) —
the gross price of which (as of the completion of the contract) does not exceed
the lesser of—
I.R.C. § 460(b)(3)(B)(i)(I) —
$1,000,000, or
I.R.C. § 460(b)(3)(B)(i)(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
I.R.C. § 460(b)(3)(B)(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.
I.R.C. § 460(b)(4) Simplified Look-Back Method For Pass-Thru Entities
I.R.C. § 460(b)(4)(A) In General —
In the case of a pass-thru entity—
I.R.C. § 460(b)(4)(A)(i) —
the look-back method of paragraph (2)
shall be applied at the entity level,
I.R.C. § 460(b)(4)(A)(ii) —
in determining overpayments and underpayments for purposes of applying paragraph
(2)(B)—
I.R.C. § 460(b)(4)(A)(ii)(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
I.R.C. § 460(b)(4)(A)(ii)(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
I.R.C. § 460(b)(4)(A)(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).
I.R.C. § 460(b)(4)(B) Exceptions
I.R.C. § 460(b)(4)(B)(i) Closely Held Pass-Thru Entities —
This paragraph shall not apply to any closely held pass-thru entity.
I.R.C. § 460(b)(4)(B)(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.
I.R.C. § 460(b)(4)(C) Other Definitions —
For purposes of this paragraph—
I.R.C. § 460(b)(4)(C)(i) Highest Rate —
The term “highest rate” means—
I.R.C. § 460(b)(4)(C)(i)(I) —
the highest rate of tax specified in section 11, or
I.R.C. § 460(b)(4)(C)(i)(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.
I.R.C. § 460(b)(4)(C)(ii) Pass-Thru Entity —
The term “pass-thru entity” means any—
I.R.C. § 460(b)(4)(C)(ii)(I) —
partnership,
I.R.C. § 460(b)(4)(C)(ii)(II) —
S corporation, or
I.R.C. § 460(b)(4)(C)(ii)(III) —
trust.
I.R.C. § 460(b)(4)(C)(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.
I.R.C. § 460(b)(5) Election To Use 10-Percent Method
I.R.C. § 460(b)(5)(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.
I.R.C. § 460(b)(5)(B) 10-Percent Method —
For purposes of this paragraph—
I.R.C. § 460(b)(5)(B)(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.
I.R.C. § 460(b)(5)(B)(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.
I.R.C. § 460(b)(5)(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.
I.R.C. § 460(b)(5)(D) Coordination With Other Provisions
I.R.C. § 460(b)(5)(D)(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).
I.R.C. § 460(b)(5)(D)(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.
I.R.C. § 460(b)(6) Election To Have Look-Back Method Not Apply In De Minimis Cases
I.R.C. § 460(b)(6)(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.R.C. § 460(b)(6)(A)(i) —
the cumulative taxable income (or loss) under the contract as of the close of such
taxable year, is within
I.R.C. § 460(b)(6)(A)(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)).
I.R.C. § 460(b)(6)(B) De Minimis Discrepancies —
Paragraph (1)(B) shall not apply in any case to which it would otherwise apply if—
I.R.C. § 460(b)(6)(B)(i) —
the cumulative taxable income (or loss) under the contract as of the close of each
prior contract year, is within
I.R.C. § 460(b)(6)(B)(ii) —
10 percent of the cumulative look-back income (or loss) under the contract as of
the close of such prior contract year.
I.R.C. § 460(b)(6)(C) Definitions —
For purposes of this paragraph—
I.R.C. § 460(b)(6)(C)(i) Contract Year —
The term “contract year” means any taxable year for which income is taken into account
under the contract.
I.R.C. § 460(b)(6)(C)(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.
I.R.C. § 460(b)(6)(C)(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).
I.R.C. § 460(b)(6)(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.
I.R.C. § 460(b)(7) Adjusted Overpayment Rate
I.R.C. § 460(b)(7)(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.
I.R.C. § 460(b)(7)(B) Interest Accrual Period —
For purposes of subparagraph (A), the term “interest accrual period” means the period—
I.R.C. § 460(b)(7)(B)(i) —
beginning on the day after the return due date for any taxable year of the taxpayer,
and
I.R.C. § 460(b)(7)(B)(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).
I.R.C. § 460(c) Allocation Of Costs To Contract
I.R.C. § 460(c)(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.
I.R.C. § 460(c)(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.
I.R.C. § 460(c)(3) Allocation Of Production Period Interest To Contract
I.R.C. § 460(c)(3)(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).
I.R.C. § 460(c)(3)(B) Production Period —
In applying section 263A(f) for purposes of subparagraph (A), the production period shall be the period—
I.R.C. § 460(c)(3)(B)(i) —
beginning on the later of—
I.R.C. § 460(c)(3)(B)(i)(I) —
the contract commencement date, or
I.R.C. § 460(c)(3)(B)(i)(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
I.R.C. § 460(c)(3)(B)(ii) —
ending on the contract completion date.
I.R.C. § 460(c)(3)(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.
I.R.C. § 460(c)(4) Certain Costs Not Included —
This subsection shall not apply to any—
I.R.C. § 460(c)(4)(A) —
independent research and development expenses,
I.R.C. § 460(c)(4)(B) —
expenses for unsuccessful bids and proposals, and
I.R.C. § 460(c)(4)(C) —
marketing, selling, and advertising expenses.
I.R.C. § 460(c)(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—
I.R.C. § 460(c)(5)(A) —
any expenses which are directly attributable to a long-term contract in existence
when such expenses are incurred, or
I.R.C. § 460(c)(5)(B) —
any expenses under an agreement to perform research or development.
I.R.C. § 460(c)(6) Special Rule For Allocation Of Bonus Depreciation With Respect To Certain Property
I.R.C. § 460(c)(6)(A) In General —
Solely for purposes of determining the percentage of completion under subsection (b)(1)(A),
the cost of qualified property shall be taken into account as a cost allocated to
the contract as if subsection (k) of section 168 had not been enacted.
I.R.C. § 460(c)(6)(B) Qualified Property —
For purposes of this paragraph, the term “qualified property” means property described
in section 168(k)(2) which—
I.R.C. § 460(c)(6)(B)(i) —
has a recovery period of 7 years or less, and
I.R.C. § 460(c)(6)(B)(ii) —
is placed in service before January 1, 2027 (January 1, 2028 in the case of property
described in section 168(k)(2)(B)).
I.R.C. § 460(d) Federal Long-Term Contract —
For purposes of this section—
I.R.C. § 460(d)(1) In General —
The term “Federal long-term contract” means any long-term contract—
I.R.C. § 460(d)(1)(A) —
to which the United States (or any agency or instrumentality thereof) is a party,
or
I.R.C. § 460(d)(1)(B) —
which is a subcontract under a contract described in subparagraph (A).
I.R.C. § 460(d)(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.
I.R.C. § 460(e) Exception For Certain Construction Contracts
I.R.C. § 460(e)(1) In General —
Subsections (a), (b), and (c)(1)
and (2) shall not apply to—
I.R.C. § 460(e)(1)(A) —
any home construction contract, or
I.R.C. § 460(e)(1)(B) —
any other construction contract entered into by a taxpayer (other than a tax shelter
prohibited from using the cash receipts and disbursements method of accounting under
section 448(a)(3))—
I.R.C. § 460(e)(1)(B)(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
I.R.C. § 460(e)(1)(B)(ii) —
who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into.
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.
I.R.C. § 460(e)(2) Rules Related To Gross Receipts Test
I.R.C. § 460(e)(2)(A) Application Of Gross Receipts Test To Individuals, Etc. —
For purposes of paragraph (1)(B)(ii), in the case of any taxpayer which is not a corporation
or a partnership, the gross receipts test of section 448(c) shall be applied in the
same manner as if each trade or business of such taxpayer were a corporation or partnership.
I.R.C. § 460(e)(2)(B) Coordination With Section 481 —
Any change in method of accounting made pursuant to paragraph
(1)(B)(ii) shall be treated as initiated by the taxpayer and made with the consent
of the Secretary. Such change shall be effected on a cut-off basis for all similarly
classified contracts entered into on or after the year of change.
I.R.C. § 460(e)(3) 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.
I.R.C. § 460(e)(4) 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—
I.R.C. § 460(e)(4)(A) —
by substituting “70 percent” for “90 percent” each place it appears, and
I.R.C. § 460(e)(4)(B) —
by substituting “30 percent” for “10 percent”.
I.R.C. § 460(e)(5) Definitions Relating To Residential Construction Contracts —
For purposes of this subsection—
I.R.C. § 460(e)(5)(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.R.C. § 460(e)(5)(A)(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
I.R.C. § 460(e)(5)(A)(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.
I.R.C. § 460(e)(5)(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”.
I.R.C. § 460(f) Long-Term Contract —
For purposes of this section—
I.R.C. § 460(f)(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.
I.R.C. § 460(f)(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—
I.R.C. § 460(f)(2)(A) —
any unique item of a type which is not normally included in the finished goods inventory
of the taxpayer, or
I.R.C. § 460(f)(2)(B) —
any item which normally requires more than 12 calendar months to complete (without
regard to the period of the contract).
I.R.C. § 460(f)(3) Aggregation, Etc. —
For purposes of this subsection, under regulations prescribed by the Secretary—
I.R.C. § 460(f)(3)(A) —
2 or more contracts which are interdependent
(by reason of pricing or otherwise) may be treated as 1 contract, and
I.R.C. § 460(f)(3)(B) —
a contract which is properly treated as an aggregation of separate contracts may
be so treated.
I.R.C. § 460(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.
I.R.C. § 460(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.
(Added by Pub. L. 99-514, title VIII, Sec. 804(a), Oct. 22, 1986, 100 Stat. 2358, and 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; Pub. L. 104-188, Sec. 1702(h), 1704(t), Aug. 20, 1996, 110 Stat. 1755; Pub. L. 105-34, title XII, Sec. 1211, Aug. 5, 1997, 111 Stat 788; Pub. L. 111-240, title II, Sec. 2023(a), Sept. 27, 2010, 124 Stat. 2504; Pub. L. 112-240, title III, Sec. 331(b), Jan. 2, 2013, 126 Stat. 2313; Pub. L. 113-295, Div. A, title I, Sec. 125(b), Dec. 19, 2014, 128 Stat. 4010; Pub. L. 114-113, Div. Q, title I, Sec. 143(a)(2), (b)(6)(I); Pub. L. 115-97, title I, Secs. 13102(d), 13201(b)(2)(A), Dec. 22, 2017, 131 Stat. 2054; Pub. L. 115-141, Div. U, title IV, Sec. 401(a)(116), Mar. 23, 2018, 132 Stat. 348.)
BACKGROUND NOTES
AMENDMENTS
2018--Subsec.
(b)(2)(A). Pub. L. 115-141, Div. U, Sec. 401(a)(116), amended subpar. (A) by inserting a comma after ‘‘first’’.
2017--Subsec. (c)(6)(B)(ii). Pub. L. 115-97, Sec. 13201(b)(2)(A), amended clause (ii) by substituting “January 1, 2027 (January 1, 2028” for “January
1, 2010 (January 1, 2021”.
Subsec. (e)(1)(B). Pub. L. 115-97, Sec. 13102(d)(1)(A), amended subpar. (B) by inserting “(other than a tax shelter prohibited from using
the cash receipts and disbursements method of accounting under section 448(a)(3))”
after “taxpayer”.
Subsec. (e)(1)(B)(ii). Pub. L. 115-97, Sec. 13102(d)(1)(B), amended clause (ii). Before amendment, clause (ii) read as follows:
“(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.’’.
Subsec. (e)(2)-(6). Pub. L. 115-97, Sec. 13102(d)(2), amended subsec. (e) by striking par. (2), by adding a new par. (2), by striking
par. (3), and by redesignating pars. (4), (5), and (6)
as pars. (3), (4), and (5), respectively. Before being struck, pars.
(2) and (3) read as follows:
“(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.”
2015--Subsec. (c)(6)(B)(ii). Pub. L. 114-113, Div. Q, Sec. 143(a)(2), amended clause (ii) by substituting “January 1, 2016 (January
1, 2017” for “January 1, 2015 (January 1, 2016”.
Subsec. (c)(6)(B)(ii). Pub. L. 114-113, Div. Q, Sec. 143(b)(6)(I), amended clause (ii). Before amendment, it read as follows:
“(ii) is placed in service after December 31, 2009, and before January 1, 2011 (January
1, 2012, in the case of property described in section 168(k)(2)(B)), or after December
31, 2012, and before January 1, 2016 (January 1, 2017, in the case of property described
in section 168(k)(2)(B).”
2014--Subsec. (c)(6)(B)(ii). Pub. L. 113-295, Div. A, Sec. 125(b), amended clause (ii) by substituting “January 1, 2015 (January
1, 2016” for “January 1, 2014 (January 1, 2015”.
2013--Subsec. (c)(6)(B)(ii). Pub. L. 112-240, Sec. 331(b), amended clause (ii) by inserting “, or after December 31, 2012, and before January
1, 2014 (January 1, 2015, in the case of property described in section 168(k)(2)(B))”
before the period.
2010--Subsec. (c)(6). Pub. L. 111-240, Sec. 2023(a), amended subsec. (c) by adding par. (6).
1997--Subsec. (b)(2)(C). Pub. L. 105-34, Sec. 1211(b)(1), amended subpar. (C) by substituting “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), substituted “the look-back method of paragraph (2)” for “the look-back method of
paragraph (3)”.
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), in introductory provisions, substituted ‘paragraph (3)’ for ‘paragraph
(4)’, and in subpar. (B) and concluding provisions, substituted ‘paragraph
(2)’ for ‘paragraph (3)’.
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 2018 AMENDMENTS
Amendment by Pub. L. 115-141, Div. U, Sec. 401(a)(116), effective March 23, 2018.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendment by Pub. L. 115-97, Sec. 13102(d), effective for contracts entered into after December 31, 2017, in taxable years ending
after such date.
Amendment by Pub. L. 115-97, Sec. 13201(b)(2)(A), effective for property acquired after September 27, 2017, and placed in service
after such date and for specified plants planted or grafted after September 27, 2017.
Pub. L. 115-97, Sec. 13201(h)(1), provided that “property shall not be treated as acquired after the date on which
a written binding contract is entered into for such acquisition.”
EFFECTIVE DATE OF 2015 AMENDMENTS
Amendment by Pub. L. 114-113, Div. Q, Sec. 143(a)(2), effective for property placed in service after December
31, 2014, in taxable years ending after such date.
Amendment by Pub. L. 114-113, Div. Q, Sec. 143(b)(6)(I), effective for property placed in service after December
31, 2015, in taxable years ending after such date.
EFFECTIVE DATE OF 2014 AMENDMENTS
Amendment by Div. A, Sec. 125(b) of Pub. L. 113–295 effective for property placed in service after December 31, 2013, in taxable years
ending after such date.
EFFECTIVE DATE OF 2013 AMENDMENTS
Amendment by Sec. 331(b) of Pub. L. 112-240 effective for property placed in service after December 31, 2012, in taxable years
ending after such date.
EFFECTIVE DATE OF 2010 AMENDMENTS
Amendment by Sec. 2023(a) of Pub. L. 111-240 effective for property placed in service after December 31, 2009.
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendments by Sec. 1211(a) of Pub. L. 105-34 applicable to contracts completed in taxable years ending after the date of the enactment
of this Act [Aug. 5, 1997].
Amendments by Sec. 1211(b) of Pub. L. 105-34 applicable 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 AMENDMENTS
Amendment by Pub. L. 104-188, Sec. 1702(h) effective as if included in the related provision of the Revenue Reconciliation Act
of 1990.
EFFECTIVE DATE OF 1990 AMENDMENTS
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 AMENDMENTS
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 AMENDMENTS
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 AMENDMENTS
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 AMENDMENTS
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.'
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.
CHANGE IN 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)).'
