- 5 -
years ended after October 31, 1988, then the accumulated earnings
and profits and resulting deficiencies for the 1989 taxable year
are:
E&P Broadaways Camerons
($21,851.09) $2,323 $3,109
Our task is to select the one alternative, if any, that is in
accordance with the governing law.
Discussion
It is undisputed that Company was required to use the
percentage of completion method for purposes of computing its
earnings and profits. Sec. 312(n)(6). The first issue is how to
perform this computation. Under section 460 as enacted by the
Tax Reform Act of 1986, Pub. L. 99-514, sec. 804, 100 Stat. 2358,
gross income from a long-term contract is taken into account as
the work progresses. The amount of gross income from a long-term
contract that is accrued for each taxable year is that proportion
of the expected total contract income that the amount of costs
incurred through the end of the taxable year bears to the total
expected costs, reduced by cumulative amounts of contract income
that were reported for previous taxable years. Sec. 460(b); H.
Rept. 99-426, at 630 (1986), 1986-3 C.B. (Vol. 2) 630; see also
Kollsman Instrument Corp. v. Commissioner, T.C. Memo. 1986-66,
affd. 870 F.2d 89 (2d Cir. 1989); Berger Engg. Co. v.
Commissioner, T.C. Memo. 1961-292.
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