John M. Cameron and Caroline D. Cameron, and John P. and Teena G. Broadaway - Page 1

                                   105 T.C. No. 25                                    

                               UNITED STATES TAX COURT                                

                      JOHN M. CAMERON AND CAROLINE D. CAMERON,                        
                 AND JOHN P. AND TEENA G. BROADAWAY, Petitioners v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 2137-94.          Filed November 29, 1995.                  

                    Ps were shareholders of X, which computed its                     
               earnings and profits under the percentage of completion                
               method of accounting.  X elected to be taxed as an S                   
               corporation and, in a subsequent taxable year,                         
               distributed a dividend to Ps.                                          
                    Held, for purposes of measuring the amount of the                 
               dividend, X's earnings and profits for its last taxable                
               year as a C corporation must be computed on the basis                  
               of year-end estimates of the total costs of its long-                  
               term contracts.  The estimates may not be revised                      
               retroactively to reflect actual costs, and earnings and                
               profits may not be adjusted for subsequent taxable                     
               years to which the subchapter S election applied.                      
               Edgar J. Tyler, for petitioners.                                       
               Michael F. O'Donnell, for respondent.                                  

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