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and treated as four separate 1-year contracts. Contract 2034 is
a 4-program-year agreement between GENDYN (petitioner) and the
Air Force to produce 480 aircraft. The first year was 1982, and
aircraft were produced continuously through 1987, when petitioner
delivered the 480th aircraft.6 Petitioner, under CCM, reported
the income, expenses, and profit attributable to all 480 aircraft
for the 1987 tax year. Respondent, by determining that the
contract should be severed into four annually reportable parts of
120 aircraft, caused certain amounts of profit, allocated by
respondent, to be moved from 1987 (the year reported) to 1985 and
1986, the tax years before the Court.7
Respondent agrees that petitioner is entitled to use CCM for
Contract 2034. Respondent also agrees that Contract 2034 is a
long-term contract for purposes of applying CCM. Respondent
determined that 2034 should be treated as four separate long-term
contracts for purposes of applying CCM. In this regard,
respondent points out that the central focus of our inquiry
should be whether there has been an abuse of respondent's
6 Each program-year's aircraft were being delivered about
2-1/2 years after the contract inception; i.e., 1982 program-year
aircraft were delivered about 10 per month during 1984, etc.
7 Respondent's determination, in addition to accelerating
the time when petitioner's profits would be reported, also
results in a larger tax liability due to a differential in the
maximum corporate tax rate between the reporting year (1987) and
the 1985 and 1986 tax years in which some of the profit would be
reportable due to any severance. The maximum rate was 34 percent
for 1987 and 46 percent for the 1985 and 1986 tax years.
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